I wrote a piece on Invezz back in March digging into what the Ethereum Merge was, why it was needed and when it would occur. The latter part was the difficult one to pinpoint, but I asserted my belief that we would see it this summer. For ETH stakers, they better hope that is still true.
Because in looking at on-chain data, the position is ugly. There is 13 million ETH now staked, but holders have been sitting idly by as the value of their locked position has dropped 77% from last November, as ETH has free-fallen from $4,800 to $1,100.
Granted, there are liquid alternatives such as the BETH tokens offered by Binance, or stETH with Lido, but given the latter’s much-publicised divergence in price from ETH amid the collapse of Celsius (which I wrote a deep dive on here), this is not a perfect solution. The reality is that a lot of stakers have been forced to watch as their holdings plummet in line with the rest of the crypto market.
Per my above chart, 8 million ETH was deposited prior to the all-time high in November, when ETH had people talking of “wen $5K”. The 77% drawdown on this portion will have stung holders, especially those who deposited the 32ETH total which is required to become a validator – this 32 ETH was worth over $150,000 in November but is now worth $35,000.
This class of investors will no doubt have been exposed to crypto elsewhere, too. With the high-profile crash of Luna (deep dive here), the Fed’s hawkish line, a tenuous geopolitical climate and general negative sentiment, crypto markets have cratered. A word I have used a lot in my recent articles is that of contagion, but it is the key factor in this intertwined world of crypto.
Where else have these investors lost money? What other assets are they holding? Which altcoins that have lost 99%? Did they have savings in UST? It seems reasonable to assume that, at least, anyone investing 32ETH to act as a validator will be feeling the pinch.
The below chart from Glassnode shows that the average ETH price deposited into the staking contract is $2,390, whereas the average price in the market is $1,670. This means that ETH stakers are actually shouldering 36% greater losses than the wider Ethereum market.
And all that ETH will be released once the Merge goes live.
What happens post-ETH Merge?
So with all this 13 million ETH set to flood the market, don’t discount a pullback in price compared to the rest of the market. It will be intriguing to track its value compared to Bitcoin, especially. The prevailing thought is often that ETH will simply moon once the Merge goes live, but I believe this is naïve thinking when looking at it in the context of the above figures. Besides, what argument is there aside from simply “Merge is good, ETH go up”?
It is likely that at this point the Merge has likely been priced in, and if anything would be more likely to dip Ethereum’s price if any more delays or hitches along the way occur.
For now, just be thankful you haven’t been an ETH validator over the last six months. And if you have, hang in there – crypto gonna crypto, right?