If the blockchain’s Merge occurs as planned, the ether issuance rate will drop and daily selling pressure will reduce, the research firm said.Read MoreCoinDesk
Ether (ETH) has a good chance of exceeding bitcoin (BTC) in market cap over the next 12 months because the Ethereum blockchain’s switch to a proof-of-stake (PoS) mechanism will reduce both the production of the tokens and selling pressure from miners, research firm FSInsight said in a report Friday.
Once the transition, which is known as the Merge, is completed, the “inflation rate of supply will decline” and selling pressure from miners will be “locked at zero,” the note said. Bitcoin has a market cap of about $461 billion, CoinDesk data show, compared with Ethereum’s $226 billion.
There are widespread misconceptions that PoS validation will allow Ethereum to scale better, however, this is false because the blockchain will still be relatively expensive at the base layer, the report said. The main purpose is to reduce energy consumption by 99.9% and to allow more users to contribute to block production, Sean Farell, head of digital asset strategy at FSInsight, wrote in the report.The switch from proof-of-work (PoW) is the first of five planned upgrades for the blockchain, and is provisionally expected to happen in September.
FSInsight said that while it is likely that there will be some secondary market selling pressure from investors looking to reduce their risk exposure after the completion of the Merge, as the network settles “flow imbalances from a deflationary supply have the potential to be incredibly constructive for price.”
“Merge-adjacent” names, which include Lido (LDO), Rocket Pool (RPL), Optimism (OP) and Polygon (MATIC) are attractive opportunities for “high-beta” exposure to the process, the note added.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.