How To Trade The Ethereum Merge?

The much-awaited wait for the Ethereum merge is set to end on 15th September. This will be a significant and closely watched event for the crypto world as the world’s second-largest cryptocurrency after Bitcoin, Ethereum, will transition from Proof-of-Work to a Proof-of-Stake model.

The proof of stake mechanism uses far less energy and will make Ethereum 99% more energy efficient.

In this article, we will discuss ways to trade Ethereum merge. We have listed popular theories surrounding Ethereum price that may guide you to take your next decision.

Hedging

At a time when there is greater market volatility and the crypto market saw a terrible performance of Terra (LUNA) and other coins, it is natural for someone to feel nervous. In such circumstances, Hedging can be an option for investors who are only half sure about the Merge. For those who are long Ether, since the recent $880 “bottom”, holding a short position in futures and options contracts can protect them from losses if ETH corrects sharply and manages to get the PoW hardfork tokens.

“Buy on rumors, sell on news”

There is a belief that when events unfold as per expectations, the market does not behave as what was anticipated. An old proverb, “Buy on rumours, sell on news,” comes into play in such circumstances.

A diamond merchant and financial expert, Joseph De La Vega, talked about this concept in his book Confusion de Confusiones in 1688. It is usually seen that News traders become active in trading at a time when there is going to be a major news event or soon after that, i..e when the market is responding to the news.

The core idea is that rumors around a positive news event result in buying, while the news itself is the reason for them to sell and take profits.

This can be cited if we take the recent example of Dogecoin. Doge, known for pumping in the era of meme stock, rose nearly 16,222% from an opening of $0.004681 on 1 January 2021 to over $0.73 on 8 May 2021.

On 8 May last year, Tesla CEO Elon Musk hosted Saturday Night Live (SNL) and mentioned Dogecoin. Just after this, Dogecoin’s price plunged to a record level. Meanwhile, ahead of this event, Dogecoin’s price had reached an all-time high at one point. Just after two days, on 10 May, at $0.45, the price dropped as high as 39%.

Right before the Merge, investors could expect more volatility in the price of the token; however, those with greater risk appetite could consider buying more ETH as of now or one or two days prior to the Merge before taking profits.

ETH prolonged Bearish Trade

Reasons why Ethereum could follow a bearish pattern, are as follows:

• The consistent rate hikes by the Federal Reserve are usually bearish for risky assets like technology stocks and cryptocurrencies. Thus, it is also possible that ETH could continue to drop.
• Those advocating POW would be bearish on Ethereum shifting to POS.
• There are apprehensions that Proof-of-Stake is more susceptible to being centralised.
• Latest developments which include more regulations, censorship of Ethereum network products, and a crackdown on Tornado Cash, present a gloomy picture.

Investors can execute this trade by selling BTC or ETH, selling USD, and shorting ETH.

Why ETH could follow a bullish pattern on Ethereum merge?

• POS uses less energy than POW, nearly 99.95%, as per the Ethereum Foundation.
• Bear markets are an opportune time to invest in assets that are anticipated to grow in the future. Past precedents show that strong bull markets have followed prolonged bear markets in cryptocurrency.
• Institutions such as VISA and banks are considering entering into products on Ethereum.
• Ethereum is still very new, and the potential for this market to grow is very high.

Investors can participate in this trade by Buying or holding ETH and staking ETH

Trade in Proof-of-Work ETC and Proof-of-Work ETHW

Away from being bearish or bullish on Ethereum, trading in Ethereum Classic (ETC) is another big risk one can take.  Ethereum Classic is Ethereum‘s hard fork. Launched in July 2016, ETC hosts and supports decentralised applications (DApps). POW miners own machines that will become outdated unless they swap to another blockchain on 15 September. ETC here is most probably the target. Vitalik Buterin, the Ethereum founder, even advised that if anyone dislikes the Proof-of-Work model, they must join the ETC community.

This can be done via a short-term “buy the rumor, sell the news” trade. This involves holding ETC, mining ETC, buying or selling ETC.

Trading Proof-of-Work ETHW is another choice for those who want to move to ETC.

Another token that can be traded right now is “ETHW IOU”. However, there is greater degree of risk attached to it. This token is offered for trade by at least seven exchanges. There are assumptions that “ETHW IOU” will be a real token post this merge.