3 Reasons Ethereum's Price Will Increase With the Upcoming Merge

How will the Merge impact prices for Ethereum?

It has been a brutal year for cryptocurrencies, with $2 trillion, almost two-thirds of the crypto market, wiped out. Cryptos themselves haven't just been hit hard. Numerous crypto funds and platforms have also gone under. Crypto lender Celsius, hedge fund Three Arrows Capital (3AC), and Voyager Digital, another popular lending platform, filed for bankruptcy in the past couple of months.

Employees have also felt the sting of crypto's collapse. Coinbase recently laid off 1,180 employees, almost a fifth of its workforce. Other crypto platforms such as Gemini, Crypto.com, BlockFi, Bitpanda, and OpenSea have followed suit, cutting 5% to 20% of their workforces or announcing a hiring freeze.

It is not all bad news though. Ethereum, the second-largest digital currency, is drastically changing how it works, becoming more green and scalable. Known as the Merge, some say this is the biggest event for crypto this year. It's currently scheduled for Sept. 19th.

What is the Merge?

According to Ethereum.org, the Merge is "the joining of the existing execution layer of Ethereum with its new proof-of-stake consensus layer…It eliminates the need for energy-intensive mining and instead secures the network using staked ETH. A truly exciting step in realizing the Ethereum vision -- more scalability, security, and sustainability."

So what does this mean for the average person? Currently, Ethereum is mined through proof-of-work, meaning you need very powerful and energy-intensive computers to mine Ethereum. The Merge will upgrade Ethereum to proof-of-stake, which means owners of Ethereum stake their coins to validate transactions and power the network.

This upgrade will result in Ethereum becoming significantly more green. Ethereum's energy consumption will be reduced by 99.95% and use dramatically less carbon to be more secure. Under proof-of-stake, Ethereum is secured by validators who stake their coins instead of miners.

How will this impact Ethereum's price?

While crypto can be volatile, the upcoming Merge can potentially have an impact on Ethereum's price.

Proof-of-stake

In proof-of-work, miners were incentivized to have more powerful computers to earn blockchain rewards. Under proof-of-stake, people with the most cryptocurrency get the most rewards. People will be incentivized to accumulate and hold as much Ethereum as possible.

Greater efficiency and scalability

Unlike Bitcoin, Ethereum is used for both a decentralized currency and storing computer code that can be used to power financial contracts and applications. The Merge will, in theory, make Ethereum more efficient and quicker. This will shorten the processing times, especially during peak network usage. As a result, more companies may start to use Ethereum due to its greater efficiency and scalability.

Deflationary

After the Merge, the number of Ethereum tokens issued may drop by 90%, according to Aaron Samsonoff, chief strategy officer and co-founder of InvestDEFY, a creator of structured crypto products. This will make Ethereum deflationary, which means the total supply of Ethereum will slowly decrease over time. This would reduce the supply of Ethereum, creating upward pressure on prices as demand rises or stays the same.

The combination of these issues can potentially have a large impact when it comes to the future price of Ethereum. The more coins you stake, the more rewards you earn. This combined with the new deflationary nature of the Merge will reduce the supply of Ethereum. In addition, there may be greater institutional demand for Ethereum, also increasing the price.

Investors should do their own research before investing in cryptos. Due to its high volatility, you should only invest what you can afford to risk losing.