Three strategies that investors can employ to trade the coming Ethereum Merge. Investors have been developing strategies to navigate the uncertainty that might arise while waiting for the Ethereum Merge. Here are some strategies to take into consideration.
The Ethereum network’s long-awaited transition from proof-of-work to proof-of-stake is set to occur from Sept 15 to 16. For the last year, traders and analysts have discussed various outcomes for the upgrade and possible trading strategies.
Let’s take a look at three options investors and traders have.
Hodl ETH to earn the expected “hardfork” token
The first strategy is relatively simple. Traders can simply buy Ether (ETH) in the spot market and hold it in their exchange wallet or whatever platform/wallet will support forked tokens and wait for the expected PoW token.
In 2017, when Bitcoin was forked to Bitcoin Cash, BTC holders received an equal amount of BCH, which traded for $1,650 per token at one point. At the height of the 2021 bull market, BCH rallied as high as $800.
If PoW tokens from those entities that choose to ignore the Merge happens, then finding exchanges that support the hard forks would be the place to sell them. Don’t forget to pay your taxes if your country obligates you.
Once people understand that speed to market is irrelevant in the face of centralization, censorship and custodians, it will be too late.
Protocol level censorship is coming. More custodians are coming.
How much power do you think the US has over a publicly traded company?
— $nadjritzcalod (@nadjritzcalod) August 16, 2022
There’s also a possibility that ETH PoW tokens won’t immediately pump and dump. Many analysts sound off about the risk of centralization to a PoS Ethereum network. While it may sound far-fetched, a miner-led PoW ETH fork could gain ground, assuming projects and developers are willing to build DApps on the blockchain.
Related: Economic design changes will affect ETH’s value post-Merge, says ConsenSys exec
Long ETH, short futures
Let’s say you’re a tad bit skeptical about whether Ethereum will successfully pull off the Merge. A lot of people are. And after this hellacious year where Bitcoin (BTC) lost all of its yearly gains, Wonderland Money collapsed and Terra (LUNA) —now Terra Classic (LUNC), Celsius and Three Arrows Capital rugged everyone, it’s perfectly natural to be nervous about a fundamental change in the market’s second largest asset.
Hedging is the option for investors who feel 50/50 about the Merge. One would be long Ether, which many holders naturally are and have been for years, or at least from the recent $880 “bottom.”
While long Ether, holding a short position in futures or options contracts allows one to protect against losses if ETH corrects sharply and hopefully obtain the PoW hard fork tokens, which should further cancel out losses on the spot position.
The hope of making up some of those “losses” from gaining the unconfirmed PoW tokens could help skittish Merge traders sleep better at night and perhaps wrap things up in profit.
Stay in stablecoins and just trade the trend
For some investors, the risk of attempting to trade the Merge outweighs the reward, and obtaining the “free” PoW hardfork tokens might not be a priority.
These investors might consider just staying in stablecoins and trading direction or the strongest trend presented by Ether. In this scenario, one would either trade daily breakouts and breakdowns or whichever way the short-term trend dictates. Many traders anticipate the Merge to be a buy the rumor, sell the news-type event and others expect the price to dump considerably after the Merge is complete.
If this is your perspective, crafting and executing a strategy around this anticipated volatility is relatively simple if one is sitting in stables. These traders could then purchase post-dip ETH if they’re true believers and if the various PoW tokens put up heavy volumes on exchanges, the price swings in hardfork tokens could also be played.