Bankless: 4 arguments against “Ethereum merger is overstated”

Last week, Jordi Alexander published an article on Bankless titled ” Is the Merge Overhyped? ” (See ForesightNews’ compilation of ” Ethereum mergers are exaggerated? Expand from these four narratives “)

Ever since Jordi joined Bankless and helped us unwrap Terra’s ticking time bomb (about a month before it collapsed), I’ve admired his rational and sober thinking about the market. It’s good practice to read his pessimistic views on mergers, which I do have a hard time seeing myself.

However, I think there are some big things that Jordi either got it wrong or overemphasized! I’ve written some rebuttals to the most clarified claims in Jordi’s article.

Bankless: 4 arguments against "Ethereum merger is overstated"

Image courtesy of Midjourney


  • Bearish because of low gas fees? Don’t do that; the reduction in circulation is what counts.
  • Bearish due to excess locked ETH? Maybe…but I think that’s exaggerated.
  • Bearish because yields will be low? Don’t do that; this is actually the bull case we’re looking for.

Let’s find out.

Is the merger overblown?

Bankless: 4 arguments against "Ethereum merger is overstated"

Argument 1: This is just a narrative game

Jordi’s first argument is that “in an endless stream of crypto narrative trading opportunities, this is just another narrative trading opportunity”. At the heart of this argument is “no matter how strong the fundamentals of the catalyst, the market can always get ahead faster than the catalyst.”

I think it’s an escape statement. It just says that any event is forgotten by time, and once it’s over, we move on to the next narrative.

That leaves no room for a fundamentally bullish merger. Before we could discuss the pros and cons, it was closed.

In my opinion, the rebuttal to this is easy.

The Ethereum merger is one of the most important events in crypto history since the birth of Ethereum itself. Not only that, but it’s also a fundamentally price- and value-related event.

If there’s anything big enough to break through the “traders to trade” parody, it’s the Ethereum merger.

If you don’t believe this view, check out  Eric Wall’s Twitter poll :

Bankless: 4 arguments against "Ethereum merger is overstated"

More than half believe the Ethereum merger will happen as advertised. Another 32.7% said that either there will be a problem or it will not happen.

That is, 62% believe the merger will happen, while the rest believe it won’t or will go wrong.

Now, if you’re like me, Ryan, Anthony Sassano, or any of the Ethereum client teams and core developers, you’d think there’s a greater than 95% chance of a merger happening on September 15th, and it’s going to be a complete success.

If the market pricing is less than 95% successful, then I don’t think the merger was priced in.

You can bet, but it’s worth noting that those who have researched the details of the merge are more bullish on its success than those who answered in this poll.

Eric Wall’s Twitter followers come from many different communities, so while Twitter polls aren’t a great data tool, I think it’s a special case that accurately reflects the wide spread of communities.

Argument 2: Gas fees have dropped significantly

Jordi’s next argument is that gas costs have dropped dramatically.

He was right, indeed.

“In the last 30 days of August, the price of ETH rose by more than 50%, and the gas consumption was only about 1300 ETH per day.”

Through this, the burn rate of EIP 1559 becomes negligible, which adversely affects the claim that ETH is an ultra-sound currency . ??

He also believes that gas fees will never return to DeFi Summer or NFT Mania levels. Both smart contracts and NFT sales mechanisms have become more efficient and gas fees have been optimized, and the L2 ecosystem is more developed, ready to absorb large L1 block space requirements.

He is right!

I fully support Jordi’s thesis that the 200+ gwei gas price era is over.

But I also think the current 8-12 gwei average gas price paradigm is too low. We are in a bear market starting in 2021. There isn’t much new happening.

But as long as the price action of cryptocurrencies has increased, the gas price will rise again. There’s always something new to do, and there’s always another bull market to come.

Jordi thinks gas fees of 200+ are abnormal. And my argument is that the gas price of 8-12 gwei is also an anomaly.

And we only need 15 gwei to achieve a net negative of ETH discovery. But more importantly, this whole thing is exaggerated.

Merge is about block reward issuance reduction! It’s not about destruction!

Bankless: 4 arguments against "Ethereum merger is overstated"

10 Gwei gas price burns about 1000 ETH per day. Proof of Stake (PoS) eliminates the daily issuance of around 1350 ETH.

Who wouldn’t be happy with low gas prices? Reducing circulation has always been the most important thing, and burning is just the icing on the cake. This effect is why some ETH bulls expect the merger to have a relatively quick impact on the price of ETH: months rather than years.

When ETH issuance is reduced to 0.43% and the rest of L1 looks like this (below), do we really say it’s not bullish?

Bankless: 4 arguments against "Ethereum merger is overstated"

Argument 3: Locked and pledged ETH will sell off

Jordi’s next argument is that the supply of staking ETH and its rewards will affect the market. In turn, once unlocking occurs, there could be significant selling pressure that will panic investors.

Maybe this claim is true, but the actual facts behind this claim don’t seem terribly pessimistic to me.

First and foremost, PoS is an inherent system that rewards those who are most bullish on the asset.

Some started staking their ETH on the beacon chain early in the 2021 bull run. At the time, ETH was only around $400-700.

To your question, these people are:

  • Eager to lock in their profits?
  • Willing to get through an unknown lock-up period by staking ETH early, and a perpetual long that may never sell?

If you staked ETH while it was below $1000, you did so within the first 6 weeks of the beacon chain going live. You are willing to take on an unknown lock-up time to get about 6-7% ETH yield.

Psychologically, I don’t see this segment as eager ETH sellers.

If it was a low conviction ETH staker who wanted a liquidity outlet, they would stake on Lido (launched in the same month as the Beacon Chain) so they could sell their ETH at any time.

And even at current prices, ETH is up 2-4x for the earliest stakers.

Finally, the pressure to open the “sell gate” can also be alleviated by those who wait for a merger to de-risk ETH, and buy ETH for the equivalent after the merger.

Argument 4: Yields will fall

Jordi believes that ETH’s staking yield is falling significantly.

“In a year after these risks disappear, Mall Cops with ETH stakes are lucky to be able to earn 1-2% annual returns after token inflation, which is even lower than U.S. Treasuries.”

“In 2023, we will see 30 to 60 million ETH staked.”

Wait, is this bearish?

Because this is actually the same as my bull case.

If ETH yields have fallen this low, it is because a large amount of ETH has been staked and the issuance is spread out among many participants. This is what ETH bulls want to see.

Low ETH yields mean a lot of ETH is staked. As more and more ETH is staked, the circulation will get lower and lower.

This also means that DeFi’s ETH yield is also high, because DeFi also sucks a lot of ETH from the secondary market.

I think it’s hard to see 30 million to 60 million ETH being staked and still being bearish. Because regardless of the relative yield of ETH, massively pledged ETH has always been one of the core pillars of ETH appreciation.

If people are willing to accept lower and lower yields on their ETH to the point that the yield falls below 3%, it is because the asset is highly desirable and the owner is willing to pay less for owning it.

Also, if we are concerned about the supply glut from the merger, why are we still seeing the supply of staked ETH increase from 14 million now to 30 to 60 million in 2023?

That doesn’t seem very pessimistic to me.

But what do I know, I’m just an ETH permabull (dead long).

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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