Former BitMEX CEO Arthur Hayes said Ethereum (ETH) is likely set for a corrective move in the coming weeks regardless of the outcome of its next update.
In a new blog post, Hayes claims that if The Merge fails, the leading smart contract platform could see a big drop in price.
“If the merger fails, the dump will be quick and vicious given the high market expectations of objective reality….
There will be a negative reflexive relationship between the price and the amount of monetary deflation. Or, to put it another way, there will be a positive reflexive relationship between the price and the amount of monetary inflation. Therefore, in this scenario, I believe traders will either sell short or choose not to own ETH.
There is a floor to this relationship in that the network is the longest running decentralized network. ETH has reached a very large market cap without a merger narrative. The most popular DApps [decentralized applications] are built using Ethereum, and Ethereum also has the most developers of any Layer 1 chain.”
In this scenario, Hayes says he does not envision Ethereum falling below the $800-$1,000 range.
ETH is trading at $1,847 at the time of writing. The second-largest crypto asset by market capitalization is down nearly 3% in the past 24 hours.
The highly anticipated ETH 2.0 upgrade, currently scheduled for September 15, will allow Ethereum’s mainnet to merge with its Beacon Chain, which would shift ETH to a proof-of-stake system. Ethereum currently uses a proof-of-work protocol.
The merger aims to address network scalability issues by setting the stage for future upgrades, including sharing.
Conversely, Hayes says a successful upgrade will spur an ETH rally, although he acknowledges that it may not be immediate.
“The structural reduction in inflation will only happen after the merger. I expect we’ll see it play out the same way as Bitcoin’s halvings – i.e. we all know the dates when they’ll happen, and yet Bitcoin still rallies after the halving.
That said, it is possible for the price of ETH to drop slightly before and right after the merger. Those who cut partially or completely would initially feel good about their decision. However, as deflation kicks in and due to the reflexive relationship between a high and rising ETH price and network usage, the price may continue to gradually increase. At that point, you will need to decide when to return to your position.
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