A former Point72 portfolio manager and crypto CIO considers Ethereum Merge ‘the most important catalyst in crypto history’. But he says ETH price will still be shaped by macro factors
How does Merge affect the Ethereum network?
cryptocoin.comAs you follow, the long-awaited Ethereum Merge date is approaching. Merge is on the back of most crypto investors’ minds before its mid-September launch date. Many crypto experts see Merge as a positive catalyst for Ethereum. Portfolio manager and crypto CIO Travis Kling is also very optimistic about Merge. But on her Unchained podcast with Laura Shin, she explains why macroeconomic factors will affect the ETH price more than Merge. Kling, who hosts Laura Shin, explains:
I see this as the most important catalyst in crypto history in terms of size and the fact that ETH is the second largest crypto. It’s even bigger than the Bitcoin halving. The bull scenario around this is relatively simple in my opinion. ETH will be deflationary. Also, ETH will be generating returns. Moreover, ETH will be ESG friendly. The world cares a lot about ESG right now.
He cites the fact that many institutional investors have begun to include ESG standards in their decisions. A distinction that previously excluded crypto given the environmental cost of the Proof-of-Work (PoW) model. Brian Mosoff, founder of Ethereum Capital, said that many investment managers are waiting for Merge to conclude to check the ESG boxes before they start investing in Ethereum.
How does Merge affect Ethereum price?
Many ETH holders are optimistic about Merge’s impact on ETH price. The bulls suggest that Merge will lead more investors to stake their ETH. Thus, he argues, it will remove it from the circulating trade supply and that more institutional capital will increase the price of ETH.
Travis Kling is optimistic about Merge’s impact on Ethereum. But he cautions against using it as a bullish argument to invest in the digital asset. This is due to larger macroeconomic factors that Kling believes are eclipsing the impact of the network’s development on the price of ETH. Kling begins by emphasizing the importance of non-crypto local capital entering the space for the future of ETH. It then highlights the following:
It is possible for crypto native capital to push the price of ETH alone much higher without getting the extra list of real deep pockets from non-cryptocurrency money alone. I think some kind of crypto native capital has evaporated in the last few months. Everyone knows what has happened in the last few months.
“There is still a ton of uncertainty in the macro terrain right now”
There is also a scenario where fresh external capital enters the Ethereum ecosystem after Merge. In this regard, Travis Kling is wary that these investors will become more dependent on macroeconomic factors. “We are still in this kind of macro-driven bear market,” Kling told Shin. “We are still dealing with some sort of fallout from what has happened to this ecosystem in the last few months.” After these words, he continues:
You can pretend you are doing a merge operation. However, you are trading the NASDAQ. The NASDAQ, on the other hand, is entirely dependent on central banks’ monetary policy and some other things. This is truly inclusive. There’s still a ton of uncertainty in the macro terrain right now. I think this is probably not the ground that most traditional capital pools would like to see to shoot ETH.
Some of the potential macroeconomic uncertainties Travis Kling mentioned include the following. First, the Federal Reserve has an ongoing tight monetary policy. That is, the pace of future rate hikes. Second, a volatile outlook for global markets and socioeconomic threats in Europe and Asia.
Also, Kling says that ETH is not the only crypto tied to macroeconomic factors. He points out that Bitcoin, which many investors claim will be a hedge against inflation, has fallen into a bear market even though consumer price increases have reached a 40-year high. Kling also adds that even classic 60:40 investment portfolios, which, as Vanguard explains, are ‘the traditional portfolio allocation to generate 7% annual returns’, do not outperform the market.
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