The Merge

On September 15, 2022 Ethereum converted from Proof-of-Work to Proof-of-Stake, one of the most anticipated events in the cryptocurrency space. 

By September 6, when the Bellatrix Upgrade was completed, the event known as the Ethereum Merge was a certainty.

The Merge was pulled off successfully after two years of ups and downs, including multiple steps, bugs, delays, and preparation. It was truly a non-event, with no bugs, no glitches — a technical achievement.

However, despite all the excitement, as of this writing, Ether is down about 25% from its highest point on September 15, just 6 days ago. 

It has truly been a case of Buy the Rumor, Sell the News.

Or, as Mati Greenspan, crypto OG, and CEO of Quantum Economics, put it:

Buy the rumor sell the merge

— Mati Greenspan (@MatiGreenspan) September 15, 2022

Twitter Market Research

How could this happen? Over the past few weeks, I conducted some Twitter polls that indicate that market sentiment around Ether was in fact, not as bullish as one might think.

Poll #1: Ethereum Strategy

What is your strategy with #Ethereum over the next 6 months?

— Alexandre Lores 🇺🇸🇨🇦🇨🇺 (@alexandre_lores) August 19, 2022

This was not so bad, but not great either. Positive answers (Buy/Hold) outnumbered negative ones roughly two to one. But 36% isn’t exactly an earth-shattering majority.

Further, that’s not so hot if you compare that with another poll conducted on Tezos at around the same time. 

As a comparison, Tezos has the 39th largest market capitalization among cryptocurrencies, around $1.3 billion as of this writing, compared to Ether’s $154 billion.

Poll #2: Tezos Strategy

What is your strategy with #Tezos over the next 6 months?

— Alexandre Lores 🇺🇸🇨🇦🇨🇺 (@alexandre_lores) August 20, 2022

First of all, the Tezos poll netted 30 more answers. Next, the positive answers (Buy/Hold) outnumbered the negative responses by a ratio of three to one. 

The Tezos community, at least the portion that follows me on Twitter and engages with polls, was more bullish than the Ethereum community.

Poll #3: Would you short ETH?

Are you considering shorting $ETH on the day of the merge if it hits resistance?

— Alexandre Lores 🇺🇸🇨🇦🇨🇺 (@alexandre_lores) September 7, 2022

This is shockingly high, with the biggest answer being yes. If these crypto traders put their money where their mouth was, they could easily see 20% gains, even 60% if they used 3x leverage. 

It seems like some did, as Eth is about $400 cheaper than when I conducted this poll.  

Poll #4: Ether vs. iPhone 14

You have only $1,600 to spend, which do you buy?

— Alexandre Lores 🇺🇸🇨🇦🇨🇺 (@alexandre_lores) September 8, 2022

To soften the blow, I included this poll, which is almost humorous. The good news is that Ether won this poll. 

The bad news is that if you bought an iPhone 14 this week, you still have a new smartphone. If you bought 1 ETH, you are potentially sitting on a 25% unrealized loss.

Outlook

As I expected, a “buy the rumor, sell the news” phenomenon occurred, as I outlined in this article and discussed on Twitter Spaces multiple times. 

So, where do we go from here?

Here is my investment thesis regarding Ether:

The Fed continues to raise rates, 75 basis points today in fact. No major risk-on asset or cryptocurrency has a very high chance of much growth until this phase ends. Once this ends and rates are maintained, these markets will start turning around.

This phase will likely continue until US consumer inflation drops considerably. I expect that the most likely outcome is that current bearish market conditions will persist for another 6–9 months at the most, at which point they will become neutral and eventually bullish. 

The most positive outcome I could see is that after the November FOMC meeting and the 2022 US Midterm elections are completed, market conditions turn from bearish to neutral. 

The most bearish outcome is that inflation does not subside, but interest rate hikes create a prolonged recession, and this continues longer, possibly even for years. There are other factors that may shock markets that no one can predict. These include the oil/gas markets, negative regulation, the Russia/Ukraine War, or other wars.

Over the next ten years, I am bullish on the growth of the Ethereum network. Whether you like it or not is irrelevant. The odds of its continued growth are quite high. Bear markets are the best time to accumulate using DCA, or dollar cost averaging.

I expect this bear market to end eventually and a bull market to begin. The most likely centered around the Bitcoin halving in 2024. Perhaps Ethereum will decouple from Bitcoin, and perhaps a bull market won’t come until much later, but either way, I expect another bull market. 

If you agree with me on points #5 and #6, short-term price action is just noise. Even if it drops a little more from here, it is a great time to accumulate ETH. This is a 75% off sale when compared to ETH’s ATH.

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This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.