The crypto market was absolutely on fire on Monday morning as Ethereum (ETH 2.26%) jumped by a double-digit percentage and most tokens on the Ethereum blockchain followed suit. Speculation that began last week that "The Merge" will improve the blockchain's functionality and create new investment opportunities has led to heavy buying of the cryptocurrency.
Utility tokens that live on the Ethereum blockchain were some of the biggest movers Monday as well. As of 11:30 a.m. ET, ApeCoin (APE -1.46%) was up 18% in the previous 24 hours, STEPN (GMT -0.42%) was up 17.3%, Axie Infinity (AXS) was up 10.4%, and The Sandbox (SAND 2.49%) was up 9.5%. All of those moves came on the heels of a strong weekend in the crypto market.
Investors appear to be diving into Ethereum for a few reasons. One is that once "The Merge" is complete, it will open up the opportunity for staking. Investors who stake their Ethereum will earn more Ethereum as a reward, effectively turning the cryptocurrency into a yield-paying instrument.
For utility tokens, "The Merge" is supposed to bring lower costs and more transactions per second to the blockchain. Ethereum has long suffered from high transaction costs compared to other blockchains. If the upgrade performs as hoped, those costs could fall dramatically.
It has helped that stocks are broadly trading higher on Monday. Earnings season has begun, and early results are showing some bright spots for the economy, which could lead investors to buy higher-risk assets such as cryptocurrencies.
Crypto values have gone through some major cycles, and the latest is a bear market that was brought on in part by multiple crypto lenders collapsing and a large hedge fund going bankrupt. Those market dislocations brought volatility and a great deal of selling as positions were unwound, but didn't fundamentally change the long-term trajectory of the industry.
If "The Merge" takes place as currently planned in September, it could bring a new wave of buyers and projects to cryptocurrencies. Ethereum has the most developers in crypto right now, and lowering costs to make transactions or buy non-fungible tokens would be a welcome shift for the blockchain.
As optimistic as I am long term, volatility can lead to wild swings in crypto values. In the last few months, we have seen downside momentum; now, we are seeing a bit of upside. But the crypto market's direction can turn on a dime.
Investors should watch for updates on "The Merge" and how it may impact transaction costs and speed. If costs aren't going to come down significantly, then the crypto market may turn bearish again, but if costs drop to low levels and Ethereum can handle more transactions, it would be great for the entire ecosystem, including the utility tokens highlighted above.