Citi, one of the world’s leading banks, drew attention to the volatility in the price of the leading altcoin project Ethereum (ETH). The bank said that Ethereum dropped to historic lows following its success in the Merge upgrade. Citi states that the process known as “The Merge” on the Ethereum blockchain is affecting the altcoin. He said that the Proof of Stake (PoS) transition is one of the most important factors and is due to the change in net ETH issuance, which fell close to zero. The research report, which was carried out on Monday, was published.
When will the leading altcoin project rise again?
According to the report, prior to Merge, prints were stable at 2 ETH per block. That said, annual supply inflation is about 4.2 percent, he said. Following Merge, the Proof of Work (PoW) consensus mechanism was removed. Together with Merge, the Proof of Stake consensus mechanism came into play. This was partially offset by the burning of fees and no new block rewards being introduced.
As we have reported as Kriptokoin.com; Merge was the first of five planned upgrades to the Ethereum blockchain ecosystem. It included the transition from PoW to the more energy efficient PoS consensus mechanism. Analysts led by Joseph Ayoub say the following for the leading altcoin:
We are witnessing Ethereum exhibiting periods of deflation amid low network activity. As a result, it seems to be moving towards a deflationary future. As activity increases, it can maintain a supply that already shows deflationary trends after the Merge in a low-burn environment.
ETH price volatility continues
Citi, the move to the PoS consensus mechanism does not appear to have stopped the issuance of PoW. Although PoW is still ongoing, it is stated that approximately 564,000 ETH has been removed from circulation in the six weeks since Merge. In US dollars, this represents approximately $870 million. Annually, it equates to a decrease of approximately $7.7 billion in the active supply of ETH with the switch to PoS. Recent moves in Ethereum price are likely to be driven by the derivatives markets. The report also noted that the Open Interest (OI) metric rose to the highest levels since April when the altcoin was trading at around $3,000. The report also includes the following statements:
This marks one of the biggest differences between price and OI in the last 3 years. It also indicates that more volatility is likely.
The bank says this is due to the high amount of leverage in the derivatives market. The bank highlights that 30-day historical volatility hit record lows after the success of the Merge upgrade. However, it was also mentioned in the report that the cryptocurrency started to rise after breaking out of the last trading range. Open interest (OI) reflects the total number of derivative contracts held in active positions by investors.
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