Is the Ethereum Merge Overhyped?
Some think it is.
Let's challenge the arguments Merge-sceptics have.
🧵👇
@gametheorizing presented an exhaustive bear case for the Merge in the article for @BanklessHQ.
I will use his arguments as the structure for this thread.
While there are many good takes, Jordi, the author, sometimes bends the facts to support his thesis.
Time to fight back.
SELL THE NEWS
Jordi believes sell-the-news event is highly probable after the Merge.
He may be right. Short-term speculators will sell.
But the substantial reduction in structural supply will have a strong impact over the long term.
twitter.com/korpi87/status/1534232705319063553
Jordi seems to consider the Merge as any other event in crypto:
"Shipping is bearish. When anticipation is gone, there is nothing to be excited about."
It's usually true but the Merge will have a long-lasting impact, hard to be priced in beforehand.
twitter.com/korpi87/status/1562589754826186755
TRIPLE HALVENING IS OVERRATED
Let's clarify it first:
"Triple Halvening" refers only to the reduced issuance.
Nothing more.
EIP-1559 Burn and Locked Staked ETH are just extra catalysts but they are nothing new - they have been live for months.
twitter.com/korpi87/status/1513459669351628807
Jordi's article is titled "Is the Merge Overhyped?".
Only the dragon on the left represents the Merge...
But it's fine. I don't want to be small-minded.
Let's talk about all three.
➡️ Reduced Issuance
Jordi agrees that the reduced issuance is bullish for ETH.
Great!
But:
- Some calculations are off. I corrected them on the screenshot.
- The comment about censorship is deceptive as it suggests lower security of PoS vs PoW and the truth is not so obvious.
➡️ The Burn
Jordi highlights gas fees on Ethereum are down bad and will not return to their highs.
He is probably right.
Gas fees are low now and may never be as high as last year.
But at the same Jordi makes a few ominous statements which are hard to agree with.
"With the current burn rate, ETH is far from being deflationary"
Really?
Daily Issuance: 1,600 ETH
Daily Burn: 1,300 ETH
Annualized Supply Growth: 365 * 300 ETH / 120M ETH = 0.09%
Is ETH inflating at 0.09% annually far from being deflationary?
I guess not.
"We don't know how low gas fees can go"
I can see the bottom on gas price chart at ~5-7 GWEI.
This may be close to the floor price determined by bots activity.
But even if gas fees went to 0, which is impossible, ETH inflation would be at ~0.48%.
Bearish?
I guess not.
"L2s will abandon Ethereum"
L2s inherit security from Ethereum, therefore, don't need to issue their token to pay for it as all other L1s.
L2s don't have sustainability issues as all other L1s where costs (emissions) > revenue (fees).
Will they abandon Ethereum?
I guess not.
➡️ Locked Staked ETH
I agree the huge unlock in the future may induce some scared holders to sell.
But the unlock is not as scary as some want to paint it and there will be plenty of time for the market to learn and undestand it.
The case for bullish unlock:
- The average price at which stakers deposited their ETH is ~$2,400 (as of July, 6).
- Those who staked when ETH was below $1,000 are most likely long-term believers.
- Low-conviction stakers could use liquid staking options.
Sellers may be scarce.
STAKING YIELD WILL GO DOWN
Yes, it will.
But it's not surprising. It has been expected to happen.
Also, lower yield means a lot of ETH is staked and:
- The network is more secure
- The issuance is better distributed
- Circulating ETH becomes scarce
This is what ETH bulls like.
There is one more argument Jordi makes:
"ETH can't be tech and meme and store of value asset at the same time. These narratives clash in fundamental ways."
It's a reasonable doubt but not related to the Merge, imo.
But I have a rebuttal to that too. In another thread though :)
TL;DR:
- The bull case for the Merge has always been about the issuance reduction. And it's massive.
- Lower burn doesn't change much, worst-case scenario is <0.5% annual inflation.
- Lower staking yield means a lot of ETH is staked. It's bullish.
The Merge is not overhyped.
If you still need to wrap your hear around the Merge, check this thread:
twitter.com/korpi87/status/1513459657381068812
@TrustlessState has also published his rebuttal to Jordi on Bankless.
If you prefer a more detailed piece, give this a read:
newsletter.banklesshq.com/p/a-rebuttal-to-jordi-alexander-and-6d2
References:
- "Is the Merge Overhyped?" by @gametheorizing: newsletter.banklesshq.com/p/is-the-merge-overhyped
- "A Rebuttal to Jordi Alexander & The Merge" by @TrustlessState: newsletter.banklesshq.com/p/a-rebuttal-to-jordi-alexander-and-6d2