Ether's price could stop being tied to other cryptocurrencies after Merge — Chainalysis

Ether's price could stop being tied to other cryptocurrencies after Merge — Chainalysis

Chainalysis says that after Merge, ETH could become independent of other cryptocurrencies because its staking rewards could make it like bonds or commodities.

Chainalysis, a company that analyzes crypto assets, has said that the price of Ether (ETH) might not be tied to the price of other crypto assets after Merge and that staking yields could drive strong institutional adoption.

In a report released on Wednesday, Chainalysis said that the next upgrade to Ethereum would give institutional investors staking yields similar to those of bonds and commodities, while also making Ethereum much better for the environment.

The report said that ETH staking is expected to give stakers a return of 10-15% per year. This makes ETH an "attractive bond alternative for institutional investors," since the yields on treasury bonds are much lower.

“Ether’s price could decouple from other cryptocurrencies following The Merge, as its staking rewards will make it similar to an instrument like a bond or commodity with a carry premium.” According to Chainalysis data, the number of institutional ETH stakers — those with $1 million worth of ETH staked or more — has “been steadily increasing” from under 200 as of January 2021 to around 1,100 as of August this year.

The company says that if this number goes up more quickly after The Merge, it should prove that institutional investors "do in fact see Ethereum staking as a good way to make money."

The Chainalysis report also says that ETH will attract more retail and institutional traders after The Merge because the upcoming upgrade will make staking a much more attractive way to invest.

At the moment, ETH that has been staked is locked up in a smart contract from which it can't be taken out until the Shanghai upgrade, which won't happen until six to twelve months after the Merge.

As a result, the staked ETH market is currently not liquid, so some staking service providers offer synthetic assets that represent the value of the staked Ether. However, "these synthetics don't always maintain a 1:1 peg," says the firm.

"The Shanghai upgrade will allow users to withdraw staked Ether whenever they want. This will give stakers more liquidity and make staking a better idea overall," the report says.

Related: Binance US starts Ether staking with low barriers before the Merge

The Ethereum Foundation says that after the transition to proof-of-stake (PoS), the Ethereum blockchain will use up to 99% less energy.

"The switch to PoS will also make Ethereum better for the environment, which could make investors more comfortable with the asset if they care about the environment. This is true for institutional investors in particular."
This week, ConsenSys, the company that made the MetaMask wallet and was started by Ethereum co-founder Joseph Lubin, also released a report about the "impact of the Merge on Institutions."

The report says similar things about how ETH staking rewards and environmental sustainability can attract institutions. However, it also emphasizes the importance of the PoS Ethereum chain "producing stronger security guarantees for institutional investors" and ETH's potential to become a deflationary asset:

"Reducing ETH issuance and increasing burns will reduce the supply of ETH over time. This will put deflationary pressure on ETH, easing institutions' fears that the price of tokens will drop to zero and making it more likely that the price will go up."