Uncertainty about the outcome of the upcoming Merge between the Ethereum mainnet and the Beacon Chain may have prompted a wave of outflows during the first full week of September, data from CoinShares indicates.
In its weekly report about the state of the crypto market, the asset management firm indicated that a total of $63 million flowed out of cryptocurrencies during the week ending September 9.
Ethereum (ETH) was the digital asset that accounted for most of this total as investors drew $62 million from the native token of the smart contracts network ahead of the completion of The Merge.
“Digital asset investment products saw outflows totaling US$63m, the 5th consecutive week of outflows when taking into consideration of the negative sentiment inferred by last week’s inflow into short-Bitcoin investment products”, commented James Butterfill, the Head of Research for CoinShares.
So far this year, Ethereum has experienced total outflows of $360.8 million resulting in total assets under management of $8.08 billion for the token.
Butterfill commented that “despite the improved certainty of the Merge”, an event that is expected to occur in mid-September, these outflows indicate that investors may still contemplate the possibility that things “might not go as planned”, with ‘sell the news’ sentiment in the market.
The Success of The Merge May Not be Threatened by a Hard Fork of Ethereum
In a blog post published in early August, Marc Arjoon, a Research Associate for CoinShares, commented that several Ethereum miners are supporting a proposal to fork the network to maintain the version that is powered by the Proof-of-Work (PoW) consensus mechanism.
Even if this happens, Arjoon reasoned that the fork should not affect the merged network from a technical perspective. In addition, the researcher highlighted that Ethereum 2.0 has “more social backing” while there are also regulatory and financial reasons that will prevent developers from migrating to the hard fork including the inability to redeem wrapped assets for the underlying token – in this case, ETH.
In addition, the absence of support from the Ethereum Foundation and its popular founder Vitalik Buterin may be another powerful reason for investors and validators to stay away from a forked Ethereum network, as they would no longer participate in the development of upgrades and technical modifications to the blockchain.
In the past 30 days, the native token of Ethereum has experienced losses of 13% while it is retreating 0.6% in the past 24 hours at $1,740.6 per coin. Comparatively, Bitcoin (BTC) has experienced a milder 8.2% loss in the past 30 days, but both have shed a similar percentage of their value since the year started.
According to CoinShares’ report, a total of $60.2 million flowed out of digital assets during the first 9 days of September. However, year-to-date flows remain positive at $416 million with BTC, Solana, and multi-asset funds attracting nearly $600 million to the ecosystem.
Notably, products that bet against Bitcoin, also known as Short Bitcoin, have received $15.5 million in inflows in the first 9 days of the month as negative sentiment toward cryptocurrencies continues on the back of a challenging macro backdrop.
Less Than a Day Left for The Merge to Occur
According to CoinMarketCap’s clock, The Merge is expected to occur in 1 day and 9 hours. This event marks a turning point for the smart contracts network as it changes the consensus mechanism that secures the blockchain from Proof-of-Work (PoW) to Proof-of-Stake (PoS)
The benefits of The Merge include a reduction in the amount of electricity required to keep the network up and running, the possibility of generating gains via Ethereum 2.0 staking, and enhanced scalability.
Once The Merge is completed, validators will be required to stake 32 ETH tokens to participate in the network. Investors who don’t have that many tokens can still participate in a staking pool to earn rewards.
However, none of the staking rewards can be withdrawn until the Shanghai upgrade is implemented. This upgrade is expected to occur in early 2023.
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