Ethereum’s Ropsten ‘Merge’ Prompts Mixed Analyst Sentiment; Bitcoin Is Flat

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Good morning. Here’s what’s happening:

Prices: Bitcoin remains range-bound; some altcoins outperform.

Insights: Analysts’ opinions differ on the Ethereum Ropsten Merge.

Technician’s take (Editor’s Note): Technician’s Take is on hiatus today.

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Prices

Bitcoin (BTC): $29,999 -0.9%

Ether (ETH): $1,782 -0.8%

Biggest Gainers

Biggest Losers

Bitcoin Holds Steady; Some Altcoins Do Better

Thursday was another “Groundhog Day” for bitcoin.

The largest cryptocurrency by market capitalization rose a little, dropped some but always remained firmly entrenched around the $30,000 threshold where it’s been camped for much of the past five weeks as investors await the latest consumer price index data on Friday.

Bitcoin was recently trading at about $30,000, roughly flat for the past 24 hours. Ether, the second-largest crypto by market cap, was changing hands just below the $1,800 level, about where it was perched a day ago and for the past few weeks. Other major altcoins were mixed with LTC off more than 3% at one point and ADA and CRO down about a percentage point. Among the winners, LINK continued its recent surge, rising over 6% at one point, while SOL was up more than 3%.

“Bitcoin continues to hover around the $30,000 level as crypto traders await a key inflation report that could trigger sway market expectations as to what the Fed may do in September,” Oanda Senior Analyst Americas Edward Moya wrote in an email.

Story continues

The European Central Bank’s (ECB) announcement that it would begin raising interest rates next month sent first major European and then U.S. indexes falling with the latter taking a last-hour dive to post their biggest decline since mid May. Technology companies suffered among the biggest batterings with the tech-heavy Nasdaq dropping 2.7% and the tech component of the S&P 500 off about the same. The ECB announced it would hike rates a quarter of a point in July to combat inflation and that it would raise rates additionally later in the year.

Investors are nervously awaiting the release of the U.S. Consumer Price Index, which is widely expected to show inflation still percolating well above 8%, its highest level in four decades. The U.S. Central Bank will likely raise interest rates another half-percentage point to match its most recent rate hike last month. Meanwhile Energy prices continued to hover around 2022 highs with Brent crude oil, a benchmark of global energy markets, closing at about $123 per barrel, a roughly 60% increase from the start of the year.

“Inflation is hot and it will remain hot and rate hike expectations should continue to climb after each monthly inflation report,” Moya wrote.

Cryptos suffered their own latest, mini-outbreak of bad news with separate reports that South Korean authorities are investigating TerraForm Labs for the collapse of its terraUSD stablecoin (UST), and that the U.S. Securities and Exchange Commission was probing whether the Singapore-registered firm had violated U.S. laws in its marketing of UST and the LUNA token that supported it.

“This has been a messy several weeks for crypto filled with lawsuits, scams, and fading interest as prices have remained anchored,” Moya wrote. “Crypto needs a few fresh catalysts to break out of these doldrums and that could take a while.”

Markets

S&P 500: 4,017 -2.3%

DJIA: 32,272 -1.9%

Nasdaq: 11,754 -2.7%

Gold: $1,847 -0.2%

Insights

Analyst Opinion Differs on the Ethereum Ropsten Merge

Ethereum’s Ropsten public testnet underwent a “Merge” on Wednesday ahead of an eventual rollout on the main network. The move comes ahead of a much-awaited shift from the current proof-of-work (PoW) network to a proof-of-stake (PoS) design.

PoW refers to a validation model that relies on entities called miners that use computing resources to validate transactions and support a blockchain network. PoS, on the other hand, relies on network “validators” who lock up relevant tokens on nodes to process transactions and support the network.

PoS systems are considered more environmentally friendly than PoW and help create a cheaper and faster blockchain. A move to PoS would alleviate recurrent criticisms of Ethereum’s network, such as the network’s fees. Fees, for example, crossed over $12,000 worth of ether (ETH) per transaction earlier this year when non-fungible tokens (NFT) related to the popular Bored Ape Yacht Club ecosystem were offered to the public.

Switching the blockchain from one consensus mechanism to another is a complex change, which requires multiple tests on testnets like Ropsten before they are finally deployed on the mainnet.

Currently, the Beacon Chain is the PoS coordination chain that already has validators creating and validating new blocks in tandem with the main PoW execution chain. Once the PoS chain has been adequately tested and secured, the two chains will merge and Ethereum will continue as a PoS blockchain.

A shift to PoS will cause a shift in ether’s market dynamics. Supply would likely decline as fewer coins would likely be issued, while expected yields of over 7% to stakers would increase demand for ether.

Such forecasts have led to positive sentiment among investors, with some, like prominent billionaire technology investor Mark Cuban, stating they are “very bullish” on the asset’s future.

Market observers and developers within the crypto space remain mixed in reaction, however.

Brad Yasar, the founder of decentralized finance (DeFi) platform EQIFI, said in an email that while a shift to PoS comes with benefits, Ethereum’s PoW model was its main feature thus far.

“As much as a transition from POW to POS is seen as the next step in Ethereum’s future and is expected to solve several main challenges the blockchain is facing, it is important to note that PoW was Ethereum’s DNA,” Yasar said. “Newer blockchains that copied Ethereum Virtual Machine (EVM) and changed the validation mechanism or block structures or fees have launched since then, yet none has been able to take over Ethereum.”

Yasar stated ether’s recent price drop was partly due to “the uncertainty among the community that has been supporting Ethereum by mining on it.”

“Miners are an important segment of any PoW blockchain community that Ethereum will alienate once it is goes PoS. The long-term impact of this change can be a significant one as many supporters of Ethereum are going to leave [the blockchain] for other opportunities,” Yasar explained.

“All the benefits of lower carbon footprint, lower fees, etc., may not be enough to keep Ethereum relevant in a post-PoW world,” he added.

Others, however, remain upbeat about the Merge’s prospects, especially considering the significantly lessening of the environmental impact.

“We should not underestimate how important Ethereum’s switch from proof-of-work to proof-of-stake will be,” said Choise.com director of strategy Austin Kimm in a Telegram message. “This is just a test, but it at least means that Ethereum is on track to do what it promised.”

“Billions of complicated processing calculations will no longer be required and it is expected that this will reduce the energy consumption to negligible levels. Multiply this across literally thousands of tokens created on Ethereum and this should be a major milestone in global crypto adoption,” Kimm said, adding his firm remains “very bullish about the future of Ethereum.”

Estimates for a full rollout to PoS on the mainnet are in the final quarter of this year. A few features, such as the ability to withdraw staked ETH, however, will have to wait until after the Merge is complete, as previously reported.

Once Ethereum shifts from PoW to PoS, validators who have staked the required 32 ETH will take over the role of adding new blocks to the blockchain.

Technician’s take

Editor’s Note: Technician’s Take is on hiatus today.

Important events

Consensus 2022 by CoinDesk

Release of U.S. Consumer Price Index

9:30 a.m. HKT/SGT(1:30 a.m. UTC): China consumer price index (MoM/YoY/May)

CoinDesk TV

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Headlines

Terraform Labs Probed for Alleged Bitcoin Embezzlement Following UST Collapse: Report: South Korean authorities are investigating, saying the implosion affected about 280,000 citizens.

$15M of Optimism Tokens Stolen by an Attacker After Wintermute Sent Wrong Wallet Address: The theft, which follows the OP token’s botched airdrop, sent the token’s price to new lows.

Circle’s Disparte Calls CBDCs ‘a Preposterous Idea’ in Digital Dollar Debate: The stage at Consensus 2022 erupted with an intense dispute over the future of a Fed-managed digital currency.

Bamboo Aims to Make Crypto Investing More Inviting: Its micro-investment and savings app will soon be available to U.S. users.

BGC Partners Expects to Launch Crypto Exchange by 2023 Q1: BGC Partners will launch a crypto exchange that can compete with larger competitors, CEO Howard Lutnick said at a conference Wednesday.

Longer reads

Neal Stephenson Coined ‘Metaverse’ in 1992. Now He’s Building One: The author is working with a number of crypto veterans on a new metaverse-focused base layer, Lamina1.

Today’s crypto explainer: How to Make It in the Metaverse

Other voices: The Evolution of Money: Cryptocurrency Regulation (Washington Post)

Said and heard

“By working with close friends who share our values, we can make sure that we are not left vulnerable to unexpected shocks while generating economic opportunity for the people in our region.” (U.S. President Joe Biden) … The thing that makes me most excited is, [what if] there had been a [decentralized autonomous organization] governing Facebook in 2008? To be clear, the problem with Facebook is not your family or your friends. Facebook has run experiments where all [it does] is give you more content that you consented to. That’s content from people you actually friended, pages you actually followed, groups you actually joined. When [it does] that for free, you’ve got less hate speech, less nudity, less violence. They’re just like, ‘Hey, let’s trust your judgment, and give you more of what you ask for.’ Not rocket science. (Facebook informer Frances Haugen in a CoinDesk Q&A) … “As U.S. gasoline prices approach a record average of $5 a gallon, fuel costs are rippling through almost every corner of business, with signs emerging that the rising expenses are beginning to alter consumer behavior.” (The Wall Street Journal)