Analyst Note: How Traders Are Positioning for the Merge

Key Insights

• The Merge is the most anticipated event in crypto in the last few years. An upgrade of this size and scope has never been attempted before.
• In aggregate traders are positioned long spot ETH, short futures, and long options. Holding spot ETH will allow you to obtain any airdrop(s) from any attempted hard fork(s).
• We discuss a range of trading strategies traders are using to capture potential market moves based on The Merge.

The Merge is the Ethereum mainnet shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS) for its blockchain consensus. The transition will merge the Beacon Chain (PoS consensus layer launched in 2020) with the existing PoW chain (becoming solely the data and execution layer of the new network). While the transition was always in the cards, it has taken much longer to get to the finish line than anyone expected. Persistent technical challenges were accompanied by the grand challenge of incentivizing miners to forgo profitable PoW mining in favor of a PoS hard fork.

It wouldn’t be an understatement to say the Ethereum Merge is the most anticipated event in crypto’s history. As expressed in our June report, there are many reasons The Merge may be bullish for the price of Ethereum. The strongest argument here is the reduction in the block reward from 2 ETH to 0.2 ETH. This 90% reduction in issuance is equivalent to three Bitcoin halvings, an event correlated to historical price appreciations. Other catalysts include the elimination of forced sellers (miners), improved energy profile (driving more investment from institutions), and the potential for a net deflationary currency.

With The Merge date now confirmed for September 15, let’s check back in on how traders are positioning for this enormous opportunity.