Last Updated: 24 July 2022
Ethereum is getting closer to their big update to proof of stake, and you can see that in the price. The value of ether has risen by more than 25% this week. According to market maker Cumberland, this could lead to an influx of institutional money.
What is a market maker?
A market maker like Cumberland buys and sells cryptocurrency on the spot market on behalf of clients. Because their trading volume is so high and they have a lot of liquidity, parties such as Cumberland are able to make the market (influence the price). They often buy and sell at the current market price.
In a way, BTC Direct and BLOX are also market makers. When a user enters a buy or sell order, these are offered on the free market at the current value.
Cumberland also offers over-the-counter services, where large amounts of crypto are traded behind the scenes. This is deliberately not done on normal exchanges because it can influence the price too much. Because of their role as market makers, Cumberland has a good view of the trends in the market.
Ethereum disconnects from macroeconomics
According to a Cumberland Twitter thread written by Johan van Bourg, the upward trend of the cryptocurrency remains intact, even though Ethereum’s price has fallen significantly since the beginning of the year.
However, he sees an essential difference from the beginning of the year, when the price was strongly correlated with macroeconomic conditions. The rise of the last two weeks seems to be due to what they call ‘crypto-fundamentalism.’
Barring any technical snafus, the emergence of a yield-bearing, deflationary, mega-cap asset is a very big deal, both for users and investors. It also matters to the participants who care about climate change (ourselves included).
— Cumberland (@CumberlandSays) July 21, 2022
One more test for The Merge
Cumberland pointed to the successful merger of the Sepolia test network into proof of stake on 6 July. On 11 August, two more test nets will be merged — one proof of work and the other proof of stake. This is exactly what will also happen on the real networks. If this last test is successful, the real merger will occur in mid-September.
Because this is such a big event in the crypto world, it has been given its own name: The Merge. Currently, there are two blockchains of Ethereum, the beacon chain and the normal one. The beacon chain is based on proof of stake and is currently only used so that users can already stake ethers. Other than that, there is no activity worth mentioning on that blockchain.
The normal blockchain uses proof of work, where miners process transactions and receive a reward for this. The Merge will merge these two blockchains, paving the way for future scale upgrades, including sharding. It is expected to reduce Ethereum’s energy consumption by 99.95%.
Good for climate funds
Cumberland added that barring technical problems, “the emergence of a yield-bearing, deflationary, mega-cap asset is a very important one” and noted that Ethereum’s move also “matters to participants who care about climate change.”
Van Bourgh is not only referring to individual crypto users, but also to institutional funds that care about the climate. For example, it clears the way for green pension funds to invest in Ethereum.
Room for institutional investors
According to the company, there are still few institutional investors who have allocated part of their portfolio to Ethereum. Van Bourgh also says that not much liquidity is needed to boost Ethereum’s price.
Cumberland sees that there is already a small group of investors who are anticipating the Merge. He looks at the activity on his company’s over-the-counter trading desk, where there is much more interest in buying Ethereum than selling it.