How prices would react ahead of Ethereum’s Merge launch on testnet

  • Ethereum price shows the affinity to move higher but is subdued due to its correlation with BTC. 
  • Investors can expect ETH to rally 30% in an optimistic scenario.
  • A  four-hour candlestick close below $1,701 will create a lower low and invalidate the bullish thesis. 

Ethereum price has been dillydallying for quite some time thanks to Bitcoin’s tight consolidation. With intraday price action looking like a pump-and-dump for BTC, altcoins seem to have managed to evolve.

ETH, for example, is reacting bullish to impulse moves and remains partially reactionless to minor downtrends. Regardless of the short-term volatility, the Merge seems to be the most-talked-about topic for Ethereum and why it is a better investment option as opposed to Bitcoin in the coming cycle.

What is the Ethereum Merge?

Simply put, the Merge is an upgrade to the Ethereum blockchain that will transfer it 100% from a proof-of-work (PoW) to proof-of-stake (PoS). The main reason behind this network update is to improve the scaling, which has been a major pain point while retaining the decentralization and security aspects of the PoW chain. 

While there have been multiple delays in the past, the developers have approximated that it should take place in August.

As announced by an Ethereum developer, Ethereum’s test network Ropsten will be merged, ie., the chain will shift to PoS on June 8. After Ropsten, the Merge will happen on Sepolia and then Goerli, with two weeks of buffer time in between each upgrade.

After the tests on these networks are confirmed to run without a hitch, the mainnet will be upgraded as well. The Ethereum developers and the team hope that this will happen in early August.

What if the transition to PoS happened today?

While the Merge has got many excited for fundamental reasons others are speculating about its effect on the Ethereum price. One Twitter user “korpi87” broke down what would happen if the Merge were to happen today.

According to his thesis, there are certain facts like the ETH issuance in PoW and PoS, daily fee revenue and the percentage of fee revenue that gets burned due to EIP-1559. After this, the assumption for the number of ETH sold by miners and stakers needs to be factored into the equation.

Once the above is done correctly, the structure supply can be seen as shown below.

The Twitter user then goes on to summarize that if the Merge happened today the total daily sell pressure, which currently stands at $10 million, would be replaced with $8 million in buy pressure. From a fundamental point of view, this flip in the narrative from an excess sell pressure to an excess of buying pressure would impact the price of Ethereum in a positive way.

The technicals, which are currently stuck in a rut due to Bitcoin, will benefit largely from this imbalance of buying and selling pressure and propel Ethereum price into the stratosphere.

ETH price and explosive moves

Ethereum price has produced a string of lower highs since May 16 and equal lows around the $1,700 support level. This consolidation coupled with the bullish anticipation of Merge could send ETH flying soon.

Separating the fundamentals from the technical shows that there is an equal high at $2,020 and that Ethereum price could rally at least 12% to sweep the equal high at $2,020. If buying pressure continues to build up, ETH will start collecting the liquidity resting above the lower high swing points formed up to May 16.

Assuming Ethereum price sweeps the May 16 swing high at $2,164, it will constitute a 20% ascent. While this run-up is bullish, it is a short-term outlook and will likely be where the upside is capped for ETH.

In the case that Bitcoin price makes a run for the $35,000 level, investors can expect ETH to follow suit and tag the higher time frame resistance barriers at $2,341 and $2,412, respectively.

ETH/USDT 4-hour chart

Regardless of the optimism surrounding the Merge, sometimes, the fundamentals fail to translate to the price action especially if the narrative does not match. In such a case, if Ethereum price produces a four-hour candlestick close below $1,701, it will create a lower low and invalidate the bullish thesis. 

This development could see Ethereum price revisit the $1,543 support level.