7 Cryptos to Watch When the Blockchain Gets an Upgrade
Within the crypto space, all eyes have focused on the digital asset that has the second largest market value. 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). Although the event – called “Merge” – could transform virtual currencies, it poses huge risks. And for investors, I’ve picked seven cryptos to watch as this major upgrade is implemented.
On paper, the merger 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 transition to PoS will trigger greater resource efficiency, a key concern these days.
However, the merger is not a guarantee of upside in crypto. In fact, the incident could paralyze the sector, according to New York Times. “It flies the jet and changes the engine in the sky,” said Chandler Guo, a crypto industry veteran who heads a group opposing the merger. “It’s very difficult. It’s very dangerous.”
While the dates have changed, the latest information suggests that the merger will happen on September 15th. If yes, here are the cryptos you can see.
Bitcoin (BTC-USD)
Source: kitti Suwanekkasit / Shutterstock.com
Although blockchain pioneer Bitcoin (BTC-USD) has nothing to do with the merger directly, it could have a significant impact. As a PoW-undergirded protocol, Bitcoin uses a gigantic amount of energy. While crypto supporters often use whataboutisms to defend this consumption – as in, “what about the energy consumption of printing fiat currencies?” – There is still a huge drain which, without a doubt, did not need to happen at all.
Kyle McDonald, an independent researcher, paints an even starker picture for BTC. He predicts that the Bitcoin network could be “regulated away”, causing the BTC price to collapse. Unlike other cryptos, the Bitcoin community lacks coordination to trigger 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, saying Bitcoin will never see $69,000 again. While such long-term trajectories are difficult to make, in the short term BTC can be shaky. In my opinion, this would be due to the “buy the rumor, sell the news” phenomenon.
Ethereum (ETH-USD)
Source: Shutterstock
In general, the consensus on Ethereum and the transition to a PoS protocol seems positive. For example, one Fortune article labeled Merge as an event that will change crypto forever. Mashable stated that it could be the most important event in the crypto world this year. Essentially, Ethereum should go greener and leave Bitcoin as the only major crypto that uses PoW.
If you want to see concrete results, analysts expect that the merger could provide a significant price increase for ETH. “Some experts believe it could send Ethereum rallying to the $3,000 mark in the coming months. Also, as such a massive event in cryptocurrency history, The Merge could lift several other related coins and tokens as well.”
Still, the apparent lack of countervailing views worries me. Nothing about crypto is easy or predictable. Furthermore, as mentioned above, the “buy the rumor, sell the news” phenomenon can rear its ugly head.
As a well-known event, it is difficult to imagine that cryptos will rise on massively publicized developments. Ethereum used to be a contrarian investment, after all.
Tether (USDT-USD)
Source: DIAMOND VISUALS / Shutterstock.com
Regardless of your opinions on the merger, you should consider assessing the dynamics of Tether (USDT-USD) before placing large bets. A stablecoin – or digital asset tied to a fiat currency – Tether has the third largest market capitalization of all cryptos. Since USDT effectively represents the currency of the wider blockchain ecosystem, its stability is critical to market confidence.
Now the good news for Tether is that you can currently trade one USDT token for one dollar. From May to the second half of July this year, that was not the case. A USDT yielded a little less than a dollar. Theoretically, such dynamics indicate bearish sentiment, which led to some concerns.
The bad news, however, is that over most of the Labor Day weekend, Tether has fallen in value. Again, the 1:1 ratio is intact. But when you drill down to the core, you can see that USDT lost some value over the weekend.
It could be nothing, or it could be a warning sign. Regardless, investors should be wary.
Cardano (ADA-USD)
Source: Shutterstock
In accordance Cardano (ADA-USD) project’s website, it was the first PoS blockchain platform “founded on peer-reviewed research and developed through evidence-based methods.” This explanation suggests that Cardano was not the absolute first PoS network. Anyway, it is a venture pioneer in consensus, which raises an exciting dilemma. Essentially, the big dog Ethereum is poised to offer intense competition.
Nevertheless, the underlying ADA coin has been the best performer of the top 10 cryptos by market cap over the past week. Up in double-digit territory at the time of writing, Cardano posted a remarkably robust action despite Ethereum’s rivalry. But how long can the ADA maintain this momentum?
Interestingly, a few months ago Cardano founder Charles Hoskinson stated that the merger would not happen in 2022. Hoskinson instead believed that investors should look towards 2023 or even 2024 for the debut date.
But now that the merger could happen in a few days, Cardano could be one of the most unpredictable cryptos. Watch this space.
Solana (SOL-USD)
Source: Rcc_Btn / Shutterstock.com
Similarly to Cardano above, Solana (SOL USD) may face pressure from the merger. After all, a critical reason why blockchain developers pivoted to Solana was that the Ethereum network became financially burdensome. With transaction fees (called gas) increasing, 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 provides several next-generation applications, including decentralized finance (DeFi), non-fungible tokens (NFT), Web 3.0, and more.
Usually, though, you can’t have your cake and eat it too. But here too, the SOL network intends to change the paradigm. “Solana’s scalability ensures that transactions remain less than $0.01 for both developers and users.”
But with the Ethereum merger slated to materialize soon, questions abound for Solana. What SOL lacks in its attempt to take on ETH is social cachet. While Solana has had tremendous success, Ethereum currently stands as the only credible altcoin that can take down Bitcoin. With a PoS mechanism under its belt, Ethereum could fundamentally become that much more formidable (assuming the merger is successful).
Chainlink (LINK-USD)
Source: Gorev Evgenii / Shutterstock.com
Over the past few years, the focus in alternative cryptos has turned to so-called Ethereum killers such as Solana. Essentially, next-generation blockchain networks offered superior scalability, security, and cost structures, making ETH look fundamentally less relevant. But should the merger go off without a hitch, Ethereum killers themselves may risk being killed.
Assuming a successful pivot to PoS, is an altcoin that can rise above much of the rest Chain link (LINK-USD). In accordance Coinmarketcap, “Chainlink is one of the first networks to allow the integration of off-chain data into smart contracts.” Instead of forcing smart contracts to use data in blockchain silos, through Chainlink, they can instead incorporate non-blockchain related calculations.
Therefore, decentralized ecosystems can take “real” commodity prices and incorporate them into trading mechanisms. Over time, such innovations may facilitate other practical transactions, such as real estate.
But the bottom line here is that Chainlink appears to be fundamentally complementary to the Ethereum merger. Therefore, look at LINK while planning which cryptos to buy. It could be very interesting.
Shiba Inu (SHIB-USD)
Source: Shutterstock
Practically speaking, cryptos may be at a crossroads with the Ethereum Merge. Should the pivot prove successful, more blockchain projects could 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.
However, given the vagaries of the merger, investors may want to consider it Shiba Inu (SHIB-USD). As a caveat, I’m only talking about the part of your digital portfolio earmarked for speculation. Furthermore, this narrative assumes that a catastrophic failure of the merger does not occur, and other cryptos collapse in its wake.
That said, what I like about the Shiba Inu is that it operates under its own ethos. Unlike other blockchain projects, SHIB does not have big ambitions to address global hunger or other international crises. Instead, it’s mostly a meme-trading community.
Therefore, the Shiba Inu can be a strange hedge against Merge ambiguities. So much investor sentiment is baked into Ethereum’s pivot. However, the main focus at SHIB has been on the joys of trading. Such simplicity can be worth a premium in a blockchain world that sometimes takes itself too seriously.
As of publication date, Josh Enomoto had a LONG position in BTC, ETH, USDT, ADA and LINK. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Guidelines for publication.
