Last Updated: 21 July 2022
What a week for Ethereum! In the last 7 days, its value has risen by 50%, from 1000 to 1500 euros. What is going on, and what can you expect? And why can Ethereum Classic (ETC) emerge as a real winner?
The crypto market may be in a deep bear market with companies falling over left and right, but certain cryptos like Ethereum are experiencing a nice rebound. The bottom of Ethereum’s price was at 1000 euros at the beginning of this 7-day period and rose to over 1500 euros. Drake undoubtedly had Ethereum in mind at the time when he sang: “we started from the bottom, now we’re here.”
#Ethereum markets have rallied strongly off the back of a large short squeeze in futures markets.
Over $98M in short futures positions were liquidated in one hour, pushing $ETH prices up by 12.5%.
— glassnode (@glassnode) July 16, 2022
According to statistics from Glassnode, the rise last week was helped by a large number of short positions not being achieved. These are contracts from traders who expect the price to fall, but if the price rises as it is now, then these traders have to replenish their collateral by buying more ethers. If they do not do so, they run the risk that their position will be liquidated, and they will lose everything.
If a position is liquidated, then these traders are forced to buy ether at higher prices than they had bet on in their short contract. If they want to avoid this, they will have to replenish the collateral for their position. The problem for these traders is that if they buy ether to replenish their collateral, they will immediately cause the price to rise instead of fall, and their position will only deteriorate.
According to the tweet above, “more than $98 million in short futures positions were liquidated in one hour, pushing ETH prices up 12.5%.”
Because short sellers exit their positions with buy orders, the exit of these short sellers drives prices up. The price rise, in turn, causes buyers to become interested in Ethereum. The combination of new buyers and panicked short sellers could result in the sort of rapid price appreciation seen in the past seven days.
Whales make rebound
According to analyst firm Santiment, the trend looks good for Ethereum. Not only is the price rising, but blockchain data shows that the number of addresses with between 1,000 and 100,000 ETH has increased since the beginning of May.
“Ethereum has recovered fairly well in July, up +29% for the month and +14% just in the past 24 hours. In addition, since the beginning of May, there has been an increase in key 1,000 to 100,000 ETH addresses, where 131 new whale addresses have appeared on the network.”
🐳 #Ethereum has recovered quite well in July, up +29% for the month and +14% alone in the past 24 hours. Additionally, there's an increase in the key 1k to 100k $ETH address tier since early May where 131 new whale addresses have popped up on the network. https://t.co/uGfRQ4dEls pic.twitter.com/ri8MhGIP0o
— Santiment (@santimentfeed) July 17, 2022
What are these whales doing with their ethers?
There are speculators here, of course, but at the moment, addresses with a large number of Ethereum are mainly used to stake ethers on the beacon network, which uses proof of stake. This is a kind of the second blockchain that runs parallel to the existing proof of work blockchain on which all apps run. On 11 July, we wrote that 11% of all available ethers have already been staked on that second blockchain.
The increases in price and number of large addresses have to do with the future merger of these two blockchains. This merger is called the merge. According to Ethereum developer Tim Beiko, the merge is expected to occur on 19 September. It will only go ahead if the final test on August 11 is successful.
Does Ethereum Classic win?
After the merge, Ethereum will consist of one blockchain again. All decentralised apps will run on it, and proof of stake will be used. The purpose of this switch is to ensure that the Ethereum network uses less energy. Currently, like Bitcoin, the network runs on miners that consume a lot of power. After the merger, energy use is expected to drop by more than 99%.
Mining will be out of the question, so miners will have to find another hobby to use their energy. It is quite easy for miners to switch to Ethereum Classic, so perhaps ETC will end up as the big winner, especially if proof of stake suffers from teething problems.
Traders see this as well, which is why ETC’s price has actually outperformed Ethereum’s in the past 7 days. Whereas Ethereum rose by 50%, Ethereum Classic rose by 80%.