I believe that Ethereum is undervalued based on the current macroeconomic environment, how the Merge will improve Ethereum and free it from Bitcoin price dependency, and the importance of a first mover advantage.

Ethereum and crypto prices have crashed alongside the stock market in recent months as investors have grappled with continued surging inflation, Russia’s war on Ukraine, rising interest rates, and recession fears. The price of Ethereum has been heavily dependent on the price of Bitcoin, which often follows the market. Although Ethereum and Bitcoin are facing the same macroeconomic environment, there are paramount improvements coming to Ethereum. I believe that the Ethereum updates represent the most important technological upgrade in the history of cryptocurrency. Given the profound impact, I believe the price of Ethereum should reflect that, and not simply mirror Bitcoin and the market. Ethereum has not been rewarded with a higher price-to-network ratio due to the fact that it is perceived as more centralized and less scarce. I believe that this trend will change after the Merge upgrade event. 

The Merge, September 15th 2022, executed Ethereum’s shift to Proof-of-Stake: phasing out mining and making the blockchain more efficient (reducing energy consumption by ~99.9%). This is the first major component of the ultimate upgrade to Ethereum 2.0, which addresses Ethereum’s weaknesses and makes the blockchain more scalable, secure, and sustainable. Ethereum also hosts many of the most important decentralized applications (dApps) and (DeFi) protocols and establishes the authenticity of millions of non-fungible tokens (NFTs). This means the outcome of the Merge will affect not just the Ethereum blockchain, but a wide constellation of products and services that rely upon it. It should be evident that this software upgrade has catastrophic implications on the Ethereum blockchain and its surrounding ecosystem. 

Speculators believe that the 2.0 upgrade has the potential to backpedal Ethereum into just another Proof-of-Work blockchain. My main counterargument has to do with Ethereum’s first mover advantage and network effects. In fact, “60 to 70 per cent of the [crypto ecosystem] runs on ethereum. It’s very sticky,” said Sandeep Nailwal, co-founder of Polygon. Other blockchains’ infrastructure can rival Ethereum, yet what competitors are lacking is the robust ecosystem built on Ethereum. There is also a lot of friction to switch everything on Ethereum to other blockchains. Instead, Ethereum patrons are patiently waiting for the upgrade. This has created a first mover advantage, sticky network effects, and high friction to switch for both Web3 developers and consumers. As soon as the 2.0 upgrade takes effect, Ethereum will boast a fantastic infrastructure as well as ecosystem. 

With the Merge finally happening, everything seems to be falling into place for Ethereum. My prediction is that the drastic improvements that the Merge will preview should result in Ethereum’s price detaching from Bitcoin and even outperforming the market. Eventually, once the market corrects and the 2.0 upgrade takes full effect, I believe that Ethereum’s price will exceed its previous all time high and is thus currently undervalued.