There has been a lot of post about The Merge recently, and rightfully so. And I have also covered it in a previous post. But I have not seen anyone that has covered the big Bull that is about to be let loose when The Merge happens.
Some background
If you have been in crypto a little while it is very likely that you have heard about the Bitcoin halving. And if you have not, or are just a bit fuzzy on what it is. It is the cyclical event where the bitcoin block reward is halved. So far we have had 3 of these, and they occur about as often as the world championship in football. No not the hand-egg version, the one the Americans call soccer. And that is close to every 4 years.
Picture sourced from: https://bitcoinmagazine.com/markets/how-halvings-will-bring-the-bitcoin-price-to-400000
We can see that as if by magic, a time after the halving Bitcoin price goes crazy and have a massive spike. And this has held true so far for all of the halving events. It appears that the decline in new available coins is a big factor in the price. As it makes new coins more scarce and the whales will continue to hold their coins. The number of available coins to buy will decrease and voila, the pride goes up. At least that appears to be the general idea behind it.
The Ethereum Bull
How does this factor into Ethereum? It does not have a halving as Bitcoin does. No, but Ethereum will have The Merge. And unless you have been looking into it a bit more, it is easy to think that all it is is a switch from Proof of Work to Proof of Stake. And while that is true, if we take a look at the details we can see the following.
Currently, if you want to earn Ethereum you can do so in two ways. The first and by far the most common is mining. The second way is by staking. And what the Merge will do is it will remove the mining part, while keeping the staking part.
I will use an excerpt from https://ethereum.org/en/upgrades/merge/issuance/ as I see little sense in me doing what they have done with the calculations. This is just so we can get some numbers and see what we are talking about.
Pre-merge issuance breakdown
Total ETH supply: ~119,300,000 ETH (as of Q2 2022)
Execution layer issuance:
Estimating at 2.08 ETH per 13.3 seconds*: ~4,930,000 ETH issued in a year
Currently inflating at ~4.13% (4.93M per year / 119.3M total)
*This includes the 2 ETH per canonical block, plus an average of 0.08 ETH over time from ommer blocks. Also uses 13.3 seconds, the baseline block time target without any influence from a difficulty bomb. (See source)
Consensus layer issuance:
Using 13,000,000 total ETH staked, the rate of ETH issuance is ~1600 ETH/day (See source)
Results in ~584,000 ETH issued in a year
Currently inflating at ~0.49% (584K per year / 119.3M total)
Total annual issuance rate: ~4.62% (4.13% + 0.49%)
~89.4% of the issuance is going to miners on the execution layer (4.13 / 4.62 * 100)
~10.6% is being issued to stakers on the consensus layer (0.49 / 4.62 * 100)
Post-merge inflation breakdown
- Total ETH supply: ~119,300,000 ETH (as of Q2 2022)
- Execution layer issuance: 0
- Consensus layer issuance: Same as above, ~0.49% annual issuance rate (with 13 million ETH staked)
- Total annual issuance rate: ~0.49%
Total annual issuance rate: ~0.49%
Net reduction in annual ETH issuance: ~89.4% (0.49% / 4.62% * 100)
The above calculations are quoted from and attributed to: https://ethereum.org/en/upgrades/merge/issuance/
And as we can see the biggest part of new Ethereum is coming from the mining part. And this basically means that after the Merge we will cut the supply of new Ethereum, not in half like Bitcoin. But we will cut it off at ~90% leaving a measly 10%. And for us to come even close to 10% we would need to do three halvings simultaneously. 100% -> 50% -> 25% -> 12,5%. And if we are using Bitcoins halving events as a comparison, we can be in for a ride of a lifetime a short time after the Merge takes place.
Personally, I think this reason is why we have seen the recent rally in the price of Ethereum. It happened just after they announced the date for the Merge. But of course, it could just be coincidental. And of course, this is not financial advice, it is nearly me pointing out some stuff. And if you want to buy Ethereum, I am currently selling it at a premium, only a 10% markup from market rates. ;) ^^
What are your thoughts on this, will we see the bull run of our lives happen sometime after the merge? Or will it just whimper out and be a nonfactor? Please share your thoughts on this and if you are looking into hoarding some $Eth for the future or not. All can be shared in the comment section as usual. =)
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See you on the interwebs!
Picture provided by: https://pixabay.com/