Ethereum Merge is about to happen. It is due in less than two weeks. In general, everybody seems to be worried about it. But I strongly believe “The Merge” may trigger a crypto crash. Let’s discover 3 very valid reasons for that.
But the question is what will be your strategy to counter the crash or even make money off this crash in the Ethereum Merge? My game plan is ready. Want to know more, read until the end of this article.
Ethereum Merge Risk #1 – Stablecoins Stability Risk
Ethereum Merge is posing a significant risk to the stability of stablecoins. Most stablecoins are locked in smart contracts on Ethereum, a dominating blockchain in the DeFi space. So, the two biggest stablecoin issuers Tether with USDT and Circle with USDC have already pledged their support for The Merge. Having these two giant players onboard is important for The Merge. All systems go, you would think, right? But that’s not it.
As a result, The Merge has the potential to unsettle some stablecoins. According to MakerDAO, there are 5 major issues that Merge could trigger:
- Negative Funding: This means that stablecoins can lose their peg. Your 1 USDT will not remain pegged to 1 USD.
- Perpetual Contract Backwardation: Futures might trade below the market Spot price.
- Network Downtimes.
- Replay Attacks: This is a vulnerability of Ethereum Smart Contracts and can be exploited by hackers after The Merge.
As a chain-split is now likely to occur on Ethereum post Merge, with POS/POW going their separate ways, it’s time to share the risk mitigation policy we previously laid out back in April, in a little more detail.https://t.co/CD5ExHKgaV
— LooksRare.eth (@LooksRare) August 29, 2022
Ethereum Merge Risk #2 – DeFi Risk
Not only MakerDAO but Aave is also concerned about the Ethereum Merge. On Sep 30th Aave started a governance vote. The vote will end today / 2nd September.
The vote is on the proposal to temporarily suspend ETH lending before the Merge. They want to reduce the risk of a breakdown in Aave’s DeFi lending protocol. This is because Aave is seeing massive jumps in ETH borrowing. Users are borrowing more ETH in anticipation that The MERGE will pump ETH hard, and they will get free money. But if traders continue to do this, it could disrupt the entire DeFi market.
Binance will also temporarily pause $ETH and ERC-20 token deposits and withdrawals during the upgrade. However, relax, this is just to add stability during the upgrade. Other exchanges will do this as well. This should not affect trading ETH or ERC-20 tokens.
Ethereum Merge Risk #3: Ethereum Node Issue
A more surprising last-minute news flash reached us from Germany. The second-biggest cloud storage provider for ETH, Hetzner in Germany, is the culprit.
They stated that hosting nodes is against their Terms of service. After years of hosting almost 10% of the Ethereum nodes, this announcement comes at a delicate moment. Out of nowhere, all of a sudden, they don’t allow mining (PoW) or staking (PoS). In the end, people using Hetzner services can move to other providers, but the timing just seems odd and could hurt Ethereum’s price action.
So many concerns around the biggest crypto event of the year. Are you ready to put all or some of your net worth into this man’s hand? Well, I am not, and that is why I have come up with this game plan that I am just about to share with you. But before that, let us briefly talk about the possibility of an Ethereum hard fork.
🚨 PSA for Ethereum node operators 🚨
You MUST have a consensus client connected to your node to remain online after the consensus layer upgrade (codename Bellatrix)
This happens in FOUR DAYS — a week ahead of the execution layer upgrade (codename Paris aka The Merge) https://t.co/sApRQzzPaq
— BowTiedDevil | Code Chad (@BowTiedDevil) September 2, 2022
Is A Ethereum Hard Fork Still Likely?
At the beginning of August, there was lots of talk of a hard fork. Especially by one of the OG ETH miners, Chandler Guo. Although not impossible, chances for a hard fork doing well seem marginal.
So, according to us, there is a slim chance for a hard fork. As we wrote in an article. Such a hard fork is unlikely to survive. A hard fork, with the current scale and size of Ethereum, is not something to look forward to. Everything will duplicate and cause all kinds of issues.
Another issue raised by Ethereum’s POW to POS move is; where will Ethereum Miners go. A better option for ETH miners could be to join the ETC chain, and that’s what they have been doing lately. They still have all their expensive mining equipment. This allows them to use it there. We also wrote an article about alternative mining options. So, ethereum’s miners surely must have looked into all these options.
My Crypto Crash Game Plan
Now, we did mention that it is not likely that a hard fork will happen. However, there are also many people banking on a hard fork. So, if you are the one who believes a hard fork could happen, you can use these strategies:
I can already see that many people are borrowing Ethereum on platforms like Aave. I know Aave might stop ETH borrowing, but then there are other lending platforms as well. This is in anticipation of a hard fork. Even though it will be 90 to 95% worth less on the PoW chain, it’s still free money, right?
In a Binance notification, they show 2 scenarios. One without a hard fork. Option ‘B’ is with a hard fork. In this case, you get the forked token from the minority chain at a ratio of 1:1. So, another chance to get some free money. What I expect, is that there will be a massive sell-off of ETH after The Merge. With or without a hard fork. Here is my strategy in case that happens:
a) Massive ETH Sell-off Strategy #1
Go to a DeFi lending platform and swap stablecoins like USDT, USDC, or DAI for ETH. You won’t have any problems repaying this, since you can pay the debt off with your borrowed ETH. It doesn’t matter if the price goes up or down, the ratio remains 1:1.
A pro tip from us, there are two different borrowing rates. A variable rate at +/- 6.5% and a fixed rate +/- 11%. Go for the higher, fixed rate. Many people may follow this strategy and the variable rate may increase quickly. It may seem high, but you’re not going to borrow it for a long period. Tops 2-3 weeks. Finally, sell off after The Merge.
b) Massive ETH Sell-off Strategy #2
This time you can look into DeFi liquidity. Around The Merge, there will be plenty of transactions. Get into a position in a fairly safe stablecoin pool and collect the transaction fees.
c) Massive ETH Sell-off Strategy #3
Another option is to find chains that miners may join. From a few scenarios, like ETC, Ravencoin (RVN), or Ergo (ERGO), it seems only ETC attracts miners. The hash rate from ETC went from around 30 to 45. That’s the only hash rate that shows some momentum. So, you can get in a position with ETC on an exchange.
However, there’s also this thing called macroeconomics. That’s recently been good for throwing a few spanners into the machinery. There’s of course the Ukrainian—Russian war. Inflation in Europe and the USA. Winter is coming. It’s never boring, is it?
So, here we are at the end of this ride. It seems like The Merge may have some impact on stablecoins due to censorship. The US government drove this point home with the Tornado Cash sanctioning.
We also saw that a hard fork is not that likely anymore. That debate looked more alive in early August. The positive news is that newer stablecoins come knocking on the door. On the other hand, regulation for crypto is also underway. As we already mentioned, this may not be a completely bad thing. If we like to see mass adaption, we can’t avoid some form of regulation.
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