Ether, the native token of the Ethereum Blockchain, is down at the start of the week, trading below the $1,900 range as the bears change the narrative, despite positive sentiment that came last week with the anticipation of the Mainnet launch of “The Merge.”
Ether rejected the $2,000 resistance in yesterday’s trading session, indicating that traders are still a bit nervous to enter a long on-the-top smart contract token. However, this is a solid 82.8% gain since the rising wedge formation started about a month ago, certainly seems like a victory for bulls. Undoubtedly, the “ultrasound money” dream gets closer as the network expects the transition to a proof-of-stake (PoS) consensus network between September 16th and 19th.
Although many praise the move to a PoS, some critics however, point out that the transition out of proof-of-work (PoW) mining has been delayed for years and that the Merge itself does not address the scalability issue. The network’s migration to parallel processing (sharding) is expected to happen later in 2023 or early 2024.
What you should know
- There are growing rumours all over social media that Ether stakers will not have access to their funds. However, Web3 advocate, Montana Wong, cleared up the doubts in a Twitter trend.
- He stated, “You may have heard of the term “Staking ETH” on the beacon chain. What this refers to is the act of providing your ETH to a validator to help secure the future post-merge network. As a reward for staking your ETH with a validator and helping secure the network, you are given block rewards. The current projected income rate is around ~4% APY but it is projected to be higher due to MEV rewards.
- “It is currently possible to stake your ETH with a validator and earn yield, even though we are pre-Merge. Right now $23,263,160,847 worth of ETH is being staked. That is about 10% of the entire market cap of ETH! So you might be wondering, won’t everyone just unstake their ETH right after the merge and dump it? No. ETH withdrawals are not currently implemented and are planned to be added in a post-merge software update.
- “This was done due to separate the complexity of building, testing, and deploying the merge itself from the withdrawal functionality. The current plan is the deploy the withdrawal functionality in a software update 6 mo – 1 year after the Merge. Also, the withdrawal system will be implemented as a queue, to limit the amount of ETH that can be withdrawn per day.”
- He concluded stating, “So in a nutshell, in order to get yields from staking your ETH, you must stake it with a validator. ETH staking withdrawals will not be available right away, which locks up a large supply of ETH that cannot be sold.”
- Undoubtedly, the decreased amount of coins available for sale caused a supply shock, especially after the 82.8% rally as Ether has recently undergone. Still, these investors knew the risks of ETH 2.0 staking and no promises were made for instant transfers post-Merge.
- Also to note, investors should look at Ether’s derivatives markets data to understand how whales and arbitrage players are positioned. The 25% delta skew is a telling sign whenever traders overcharge for upside or downside protection. As a tip, if those market participants feared an Ether price crash, the skew indicator would move above 12%. On the other hand, generalized excitement reflects a negative 12% skew.
- The skew indicator remained neutral since Ether initiated the rally, even as it tested the $2,000 resistance. The absence of improvement in the market sentiment is slightly concerning because ETH option traders are currently assessing similar upside and downside price movement risks.
Meanwhile, the long-to-short data shows low confidence at the $2,000 level. This metric excludes externalities that might have solely impacted the options markets. It also gathers data from exchange clients’ positions on the spot, perpetual and quarterly futures contracts, thus better informing on how professional traders are positioned.
Even though Ether has rallied 18% between August 4th and 15th, professional traders have slightly reduced their leverage long positions, according to the long-to-short indicator. For instance, the Binance traders’ ratio improved somewhat from the 1.16 start but finished the period below its starting level near 1.12.
