Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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The Ethereum merge is expected tomorrow
Summary: The Ethereum merge is set to launch tomorrow morning. We take a last view at its expected execution and impact.
We are nearing one of the largest events in the history of crypto - the highly anticipated Ethereum merge - which currently is expected to occur tomorrow morning at 05:00 AM CET but may occur slightly later in the day compared to this estimate.
The Ethereum merge fundamentally changes the way that transactions are validated on the blockchain by changing Ethereum’s consensus mechanism from proof-of-work to proof-of-stake. The latter consumes around 99.95% less energy. As validators are rewarded in newly issued crypto, the lower amount of required energy allows a lower issuance of new Ether, thereby minimizing the dilution of existing Ether holders.
We expect the merge to occur flawlessly as it has been extensively tested for at least 1.5 years. If the merge occurs flawlessly, the proof-of-stake consensus will take over from proof-of-work in a matter of seconds with no downtime as soon as the point of the merge has been reached. Within around 13 minutes following the merge, we know whether the upgraded blockchain behaves as intended by finalizing blocks. Though, it is important to clarify that the merge and Ethereum’s proof-of-stake consensus are experimental technologies. If issues arise, it will potentially delay the merge as Ethereum may be rolled back to the current proof-of-work chain until the issues are fixed. In that case, we expect the price of Ether to drop but the volatility to surge.
Since many exchanges halt Ether withdrawals and deposits during the merge, there may become price differences between exchanges, while market makers may not be able to do sufficient arbitrage. This will particularly be the case if the merge does not turn out right. Due to this, we recommend being alert if trading Ether around the merge.
To follow the merge closely, we recommend Ethereum Foundation’s live stream. The live stream is planned to go on air around one hour before the merge.
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