Within the realm of cryptos, all eyes have focused on the digital asset commanding the second-biggest market capitalization. The popular blockchain network, Ethereum (ETH-USD), which previously ran on a consensus mechanism called proof of work (PoW), is now set to transition to an exponentially more efficient protocol called proof-of-stake (PoS). Though the event — called the “Merge” — could transform virtual currencies, it presents massive risks. And for investors, I’ve picked seven cryptos to watch as this major upgrade is implemented.
On paper, the Merge should be a boon for cryptos. Like any technical invention, the pivot to PoS represents the constant search for improvement. Perhaps most prominently, a blockchain transitioning to PoS would spark greater resource-usage efficiencies, a key concern these days.
However, the Merge isn’t a guarantee for upside in cryptos. Indeed, the event could cripple the sector, according to the New York Times. “It’s flying the jet, and changing the engine in the sky,” said Chandler Guo, a crypto industry veteran who leads a group opposing the Merge. “It’s very difficult. It’s very dangerous.”
While dates have shifted, the latest information suggests that the Merge will happen on Sept. 15. If so, here are the cryptos to watch.
Though blockchain pioneer Bitcoin (BTC-USD) has nothing to do with the Merge directly, it could incur a significant impact. As a PoW-undergirded protocol, Bitcoin consumes a gargantuan amount of energy. While crypto proponents often deploy whataboutisms to defend this consumption — as in, “what about the energy consumption of printing fiat currencies?” — it’s still a massive drain that arguably didn’t need to happen at all.
Kyle McDonald, an independent researcher, provides an even starker picture for BTC. He predicts that the Bitcoin network may be “regulated away,” causing the BTC price to collapse. Unlike other cryptos, the Bitcoin community lacks the coordination to spark a pivot to PoS. As more blockchain networks offer efficient protocols, BTC may become a relic and a liability.
McDonald doubled down on his thesis, stating that Bitcoin will never see $69,000 again. While such long-term trajectories are difficult to make, in the near term, BTC could be shaky. In my opinion, this would be due to the “buy the rumor, sell the news” phenomenon.
Generally speaking, the consensus about Ethereum and its transition to a PoS protocol appears positive. For example, a Fortune article labeled the Merge as an event that will change cryptos forever. Mashable stated that it could be the most important event in the crypto world this year. Essentially, Ethereum should become greener and leave Bitcoin as the only major crypto utilizing PoW.
If you want to see tangible results, analysts anticipate that the Merge may yield a significant price hike for ETH. “Some experts believe it could send Ethereum rallying to the $3,000 mark in the coming months. Moreover, being such a massive event in the history of cryptocurrencies, The Merge may lift several other related coins and tokens as well.”
Nevertheless, the apparent lack of counterbalancing views worries me. Nothing about cryptos is easy or predictable. Further, as mentioned above, the “buy the rumor, sell the news” phenomenon could rear its ugly head.
As a well-known event, it’s hard to imagine that cryptos will rise on massively publicized developments. Ethereum used to be a contrarian investment, after all.
Irrespective of your opinions about the Merge, you should consider assessing the dynamics of Tether (USDT-USD) before placing heavy wagers. A stablecoin — or digital asset pegged to a fiat currency — Tether commands the third biggest market capitalization of all cryptos. Since USDT effectively represents the currency of the broader blockchain ecosystem, its stability is vital for market confidence.
Now, the good news for Tether is that at this moment, you can trade one USDT token for one buck. From May to the second half of July of this year, that wasn’t the case. One USDT yielded slightly less than a buck. Theoretically, such a dynamic indicates bearish sentiment, which brought about some concerns.
However, the bad news is that over most of Labor Day weekend, Tether has been declining in value. Again, the 1:1 ratio is intact. But drilling into the pips, you can tell that USDT ever so slightly lost value over the weekend.
It could be nothing or it could be a warning sign. Either way, investors should be vigilant.
According to Cardano (ADA-USD) project’s website, it was the first PoS blockchain platform “to be founded on peer-reviewed research and developed through evidence-based methods.” This explanation implies that Cardano wasn’t the absolute first PoS network. Either way, it’s a staking consensus pioneer, which raises an intriguing dilemma. Essentially, the big dog Ethereum stands poised to offer intense competition.
Nevertheless, the underlying ADA coin has performed the best out of the top 10 cryptos by market cap over the trailing week. Up into double-digit territory at the time of writing, Cardano printed a remarkably robust action despite Ethereum’s rivalry. But how long can ADA sustain this momentum?
Interestingly, a few months ago, Cardano founder Charles Hoskinson stated that the Merge would not happen in 2022. Instead, Hoskinson believed that investors should look toward 2023 or even 2024 for the debut date.
But now that the Merge might happen in a few days, Cardano may be one of the most unpredictable cryptos. Watch this space.
In the same vein as Cardano above, Solana (SOL-USD) may face pressure from the Merge. After all, a critical reason why blockchain developers pivoted to Solana was that the Ethereum network became financially onerous. With transaction fees (called gas) surging, many developers sought greener pastures. Solana answered the call with a compelling opportunity.
According to the project’s website: “Solana is the fastest blockchain in the world and the fastest growing ecosystem in crypto.” It empowers several next-generation applications, including decentralized finance (DeFi), non-fungible tokens (NFTs), Web 3.0 and more.
Typically, though, you can’t have your cake and eat it too. But here too, the SOL network intends to shift the paradigm. “Solana’s scalability ensures transactions remain less than $0.01 for both developers and users.”
However, with the Ethereum Merge scheduled to materialize shortly, questions abound for Solana. What SOL lacks in its bid to take on ETH is social cachet. While Solana has enjoyed massive success, Ethereum currently stands as the only credible altcoin that can take down Bitcoin. With a PoS mechanism under its belt, Ethereum fundamentally might become that much more formidable (assuming the Merge is successful).
In recent years, the focus within the realm of alternative cryptos pivoted to so-called Ethereum killers like Solana. Essentially, next-gen blockchain networks offered superior scalability, security, and cost structures, making ETH look fundamentally less relevant. However, should the Merge go off without a hitch, Ethereum killers may themselves risk being killed.
Assuming a successful pivot to PoS, one altcoin that could rise above much of the rest is Chainlink (LINK-USD). According to Coinmarketcap, “Chainlink is one of the first networks to allow the integration of off-chain data into smart contracts.” Rather than forcing smart contracts to apply data within blockchain silos, through Chainlink, they can instead incorporate non-blockchain-related metrics.
Therefore, decentralized ecosystems can take “real-life” commodity prices and incorporate them into trading mechanisms. Over time, such innovations can perhaps facilitate other practical transactions, such as real estate.
But the bottom line here is that Chainlink appears to be fundamentally complementary to the Ethereum Merge. Therefore, watch LINK as you strategize which cryptos to buy. It could become very interesting.
Shiba Inu (SHIB-USD)
Practically speaking, cryptos may be at a crossroads with the Ethereum Merge. Should the pivot turn out to be successful, several blockchain projects may benefit. However, it would also mean that Ethereum competitors could be forced to stand in the unemployment line (metaphorically speaking). Should the project fail, it could also take down virtual currencies that depend on the ETH architecture.
Given the vagaries of the Merge, though, investors may want to consider Shiba Inu (SHIB-USD). As a caveat, I’m only talking about the portion of your digital portfolio earmarked for speculation. Further, this narrative assumes that a catastrophic failure for the Merge doesn’t happen, collapsing other cryptos in its wake.
Having said that, what I like about Shiba Inu is that it operates under its own ethos. Unlike other blockchain projects, SHIB doesn’t have grand ambitions to address global hunger or other international crises. Instead, it’s largely a community for meme trading.
Therefore, Shiba Inu could be a strange hedge against Merge ambiguities. So much investor sentiment is baked into Ethereum’s pivot. However, the main focus on SHIB has been on the joys of trading. Such simplicity could be worth a premium in a blockchain world sometimes taking itself too seriously.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, ADA and LINK. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.