By Gobi Desert Canoe Pro for the Carl Kruse Blog
Editorial Note: Ethereum is a new technology, on the frontier of knowledge and practice. Ethereum is volatile, risky, experimental. The Carl Kruse Blog includes this article by Gobi in the interest of furthering discussion on Ethereum, not to shill it or encourage anyone to invest in it. Anyone investing in Ethereum could lose their entire investment. Please exercise care, do extensive due diligence and consult with a financial advisor before contemplating parting with your money in any investment, Ethereum or otherwise. Please read this last sentence again and stay safe.
June 2022 and gloom abounds and I don’t recall ever feeling so bad financially. Not through the 2000 dot com crash, not during the 2008 financial crisis and not in the 1987 stock market crash. By now I should be more thick-skinned but so it goes, proving Nietzsche wrong in that what does not kill you makes you stronger. What does not kill you but hurts you actually makes you weaker and I’m feeling especially weak these days.
Anyway, I am trying to stay strong. My nervous friends and family have asked for my take on the markets, even as it has become difficult to predict what happens. Most of the advice I am asked about concerns crypto.
So, crypto has been volatile, to say the least. And while I remain sure it has a bright future, the next weeks and months could be difficult. Some observers think prices can go down more. I’ve been stressed wondering about the next steps, though I feel it can’t go down much more. Let’s see if my gut is right. About 50% of my assets are in crypto, so I feel the pain perhaps more than others, making for a finely tuned gut.
When asked what to do regarding crypto, I am quick to say I am an insignificant actor on the stage, yet feel there is one advantage I have if you can call it that, and it is regarding Ethereum.
I have been tuning in to the ETH core developers calls (you can too on Youtube) and I am confident the so-called Ethereum upgrade to 2.0, frequently called “the Merge,” is going to happen, probably in September. And this will be bigger than most imagine. Many folks are ignorant of this event, but it is coming.
The “Merge” will see the current Ethereum system move from its Proof of Work (POW) mechanism, which is similar to what Bitcoin uses, to a Proof of Stake (POS) system. No need to worry about these terms for now, what is important is that the Merge is a fundamental transition for the second largest asset in crypto, and is perhaps the most important event in the space since the birth of Bitcoin.
Because of former delays, many people are skeptical that the Merge will happen this year. But I am confident it will, and likely by September, though no formal announcements have been made. (For a more detailed analysis of Wen Merge? check out the Carl Kruse Medium article on the subject.)
Right now daily issuance of ETH tokens go to miners as payment for securing the network. These people have large expenses in electricity and equipment to maintain the ETH blockchain and a good percentage of the ETH received is sold to cover those costs. Immediately post-Merge, about 90% of this ETH issuance disappears, and the remaining 10% goes into the hands of people who not only do not need to sell, but will be incentivized to hold because of higher staking yields that also come with the Merge. So there is a supply shock to ETH but also a large reduction in sell pressure. Assuming demand for ETH stays the same, the price of ETH should move higher quickly. If demand doesn’t stay the same but actually increases, for example new people buying ETH to stake for the new higher yields, a scenario of lower availability, less selling and more buying — all happening at once — could see ETH explode higher in price.
I think the ETH developers will announce the Merge some time in August and ETH will start moving up in price as investors anticipate what I have just described. NOTE: Many people might disagree with me regarding timing. But when the actual Merge takes place, between August-October, the supply shock together with less selling pressure and likely new buying pressure should move ETH past its former all time highs. Now anything can happen in crypto and the Merge could be delayed, though the hour is late and I can’t see it being delayed past October. Obviously some might disagree, which makes the world go around.
Because I am not sure what happens in the short term, and have become frustrated and nervous with good crypto picks yet at the same time feel quite sure what will happen to ETH in the next few months, I think it best to minimize short term risks but maximize chances taken with ETH in the next few months. Please do your own research as I am speaking from my perspective even if it is well-intentioned.
The strategies I propose might seem boring, but I think they give a good chance to make money in crypto these coming months, while protecting yourself from today’s wild environment.
Step one I think is to disengage from centralized crypto facilities such as exchanges like Celsius, Kraken, Voyager, and the like. Many of these have been in trouble, and “not your keys, not your crypto” has never proven more true. Move crypto assets into hardware wallets and cold storage. Snuggle up.
Step two is to disengage from Defi and yield earning maneuvers. Though many protocols are weathering the current storm nicely, a few weeks/months of not getting yield is perhaps worth the cost of being safe during these turbulent times.
Step three, wait until after June 30, the calendar end for the 2nd quarter and the end of the first half of the year, two dates for which many crypto funds allow redemptions, meaning we could see investors redeem their accounts and sell their crypto positions for cash. This could cause a dip.
Step four, begin to dollar-cost-average in to Ethereum after the first week of July. After any potential end of quarter redemptions. DCA could be daily. Weekly. Whatever. Start nibbling.
Step five, for those frisky and adventurous spirits, invest in the call options for Ethereum, say for December 2022 and March 2023. For non-USA counter parties Deribit is a good place to do this. If this is Klingon to you, skip it and just accumulate Ethereum.
Step six, wait for the months after the Merge, which should see Ethereum rise in price.
Stay safe and be good to each other.
This Carl Kruse Blog homepage is at https:/carlkruse.at
Contact Carl Kruse at carl AT carlkruse DOT com
Former crypto articles in the blog include NFT Fever, Stablecoins, and the Carl Kruse commentary on EOS. Carl Kruse himself has an ancillary article on Medium as to when the upcoming Ethereum Merge will take place.
Carl Kruse is also on the Richard Dawkins Foundation site.