Will ether’s price fall after the ‘Merge’ in September?

Crypto in a snap

Bitcoin BTCUSD gained 6.9% over the past seven days, and was trading at around $24,139 on Thursday, according to CoinDesk data. Ether ETHUSD advanced 16.9% over the seven-day stretch to around $1,879. Meme token Dogecoin DOGEUSD went up 7.8% while another dog-themed token, Shiba Inu SHIBUSD, added 5.4% from seven days ago.

Crypto Metrics

‘Merge’ is coming

As Ethereum’s highly-anticipated “Merge” approaches, ether’s spot and derivatives markets have seen increased activities.

The “Merge” is an upgrade that will transition Ethereum from proof-of-work to proof-of-stake, a consensus mechanism that is much more energy efficient, and will pave the way for the blockchain to be cheaper and more productive. Tim Beiko, who organizes Ethereum core developer calls, in July projected the “Merge” to be launched in the week of September 19. 

As the date comes nearer, ether has been gaining market share, while the market share of bitcoin and stablecoins have been declining, according to a Tuesday note by Arcane Research. 

Meanwhile, in late July, the open interests of ether options, which measures the outstanding contracts, surpassed that of bitcoin for the first time in history. The open interests of ether options recently stand near its all-time high, while those of bitcoin options are still about 35% lower from its peak, according to data from Glassnode. 

Eliézer Ndinga, director of research at 21 Shares, said he expects more volatility in ether price with the “Merge” approaching. “It could be on the upside or the downside,” Ndinga said. “It would depend, again, on how successful the merger would happen,” according to Ndinga. 

“In the options market, some people have expiry dates around the end of September, which is obviously indicative of speculation,” Ndinga noted. 

Some traders appear to be positioning themselves with the expectation for ether price to rise into the merge and fall afterwards, according to analysts at Glassnode. 

“Both futures and options markets are in backwardation after September, suggesting traders are expecting the Merge to be a ‘buy the rumor, sell the news’ style event, and have positioned accordingly,” the analysts wrote in a note Tuesday. 

Ether’s three-month futures contracts have been trading lower than its spot price. “This means that futures traders are pricing ETH at a discount post Merge,” according to the Glassnode analysts. 

The backwardation may also be a result from some trader’s strategy of going long ether in the spot market while shorting ether futures, in preparation for the possibility of a hard fork, analysts at Arcane Research noted.

In late July, Ethereum miner Chandler Guo proposed to hard fork the Ethereum blockchain, splitting the chain, with one that continues to be based on the proof-of-work consensus mechanism. After Ethereum moves to the proof-of-stake mode, miners will become obsolete.

Hear from Mike Novogratz at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The Galaxy Digital CEO has ideas about navigating the crypto winter.

Coinbase under SEC scrutiny

Coinbase Global Inc. COIN  said it has received investigative subpoenas and requests from the U.S. Securities and Exchange Commission, pointing to potential further pressure facing the crypto exchange, after it posted wider-than-expected losses in the second quarter.

The crypto exchange said Tuesday it has received investigative subpoenas and requests from the SEC “about certain customer programs, operations, and existing and intended future products”, including its processes for listing assets, the classification of certain listed assets, its staking programs, and its stablecoin and yield-generating products, according to a quarterly filing. 

Coinbase has been reportedly facing a U.S. probe into whether it improperly let Americans trade crypto that should have been registered as securities, according to a Bloomberg report in July.

In a shareholder letter also published Tuesday, Coinbase said the SEC in May sent the company a voluntary request for information, including its listings and listing process, but that the exchange doesn’t yet know if this inquiry will become a formal investigation. “We regularly get formal and informal questions from regulators about our views on the development of the cryptoeconomy, our products, and our operations,” the company wrote in the shareholder letter.

Treasury Department sanctions Tornado Cash

The U.S. Treasury Department’s Office of Foreign Assets Control on Monday sanctioned Tornado Cash, which allows users to conduct private crypto transactions.

As a result, Tornado Cash’s property and interests in property in the U.S. will be blocked, according to a statement by the Treasury Department Monday.

The platform has been used to launder more than $7 billion worth of cryptocurrencies since its creation in 2019, including $455 million stolen by the Lazarus Group, a North Korean state-sponsored hacking group, according to the statement.

Tornado Cash was also allegedly used to launder more than $96 million in the hack on Harmony blockchain’s Horizon bridge in June and over $7.8 million from the exploit against Nomad bridge earlier this month, the Treasury department said.

Crypto companies, funds

Shares of Coinbase Global Inc. tanked 10.9% to $83.90 on Thursday, and they were down 5.6% over the past five trading sessions. Michael Saylor’s MicroStrategy Inc. MSTR went down 0.5% Thursday to $334.08, while the shares went up 7.8% over the past five days.

Mining company Riot Blockchain Inc. RIOT shares gained 3.7% to $9.44 Thursday, and rallied 15.6% over the past five days. Shares of Marathon Digital Holdings Inc. MARA rose 4.5% to $17.09, with a 27.8% gain over the past five days. Another miner, Ebang International Holdings Inc. EBON saw shares up 1.8% to $0.60 on Thursday, for a 13% gain over the past five days.

Overstock.com Inc. OSTK’s shares added 3.5% to $30.95. The shares gained 8.9% over the five-session period.

Shares of Block Inc. SQ, formerly known as Square, lost 3.3% to $85.88, and were down 4.2% for the week. Tesla Inc. TSLA shares dipped 2.8% to $858.83, down 7.2% over the past five days.

PayPal Holdings Inc. PYPL edged up 0.1% to $99.05, contributing to a 2.1% gain over the five-session stretch. Nvidia Corp. NVDA shares retreated 1% to $179.82, looking at a 6.7% loss for the past week.

Advanced Micro Devices Inc. AMD shares declined 0.7% to $98.36 on Thursday, 5.3% lower from five trading days ago.

Among crypto funds, ProShares Bitcoin Strategy ETF BITO picked up 2.1% to $14.92 Thursday, while its Short Bitcoin Strategy ETF BITI dropped 2.2% to $32.34. Valkyrie Bitcoin Strategy ETF BTF added 2.1% to $9.26, while VanEck Bitcoin Strategy ETF XBTF traded 2.8% higher to $23.65.

Grayscale Bitcoin Trust GBTC advanced 1.8% to $15.23.

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