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Arthur Hayes says “Ethereum doesn’t need to go deflationary post-merger”

Arthur Hayes, co-founder of crypto exchange BitMEX, doesn’t think Ethereum should go deflationary after the next meltdown.

Hayes, who was also a former Ethereum skeptic, said in a recent interview with Laura Shin that it doesn’t matter on a macro level. Making a comparison to Bitcoin’s halving, Hayes said, “Bitcoin’s inflation rate is going down, it’s not going to deflation (at least it’s not yet) after the halving, but the price keeps going up.”

Pressure to deflate ETH as price levels remain low

Hayes’ comments follow the Bellatrix upgrade to the Ethereum network that went live on September 6 that changes the network’s fundamental transaction validation algorithm ahead of the final part of “The Merge.”

However, against the backdrop of Ethereum’s price action in 2022, many fear that the proof-of-stake transition, which is expected to take place next week, may not be enough to create deflationary pressure on Ethereum at current price levels. .

In a recent blog post, the former CEO of BitMEX also explained that the merger itself is not affected by the price of Ethereum. He argued, “Those who believe that ETH will become a deflationary currency must also believe that network usage (and therefore the amount of ETH burned in fees paid by users) will be high enough to negate the amount of ETH issued each block as a reward for validators.

Ethereum saw its last all-time high of over $4,800 about 10 months ago in November 2021. Since then, the second-largest cryptocurrency by market capitalization has lost 70% of its value. At press time, Ethereum was trading at $1,520 according to CoinGecko.

Interestingly, Hayes opines that while Bitcoin is “money” and can be likened to the “digital gold of the internet”, Ethereum’s goal is to be a “decentralized computer” and a significant rise in prices could be “detrimental” to its use. Therefore, he believes that reducing Ethereum inflation with the merger is the only thing users should focus on at the moment.

Is the price of The Merge included?

Hayes also pointed out last month that ETH/USD futures are “undervalued” given that The Merge is a bullish event that “has not yet entered the market.” He then noted that the expected future value is 76% higher than today with a model futures price of $2,815. This essentially brings the price of Ethereum to nearly $5,000 by the end of the fiscal year thanks to a successful merger, according to Hayes.

On the other hand, he predicted a negative reflexive link between the price and the degree of monetary deflation in the event of a failure of the merger. “I think ETH will not go below the $800-$1,000 prices it saw during the TerraUSD/Three Arrows crypto credit crash,” Hayes said.

However, with co-founder Vitalik Buterin confirming As the timeline for the rollout of Merge is estimated between September 13-15, the industry is considering the Paris upgrade that will launch The Merge.

Dr Anna Becker, CEO of algorithmic crypto investment platform EndoTech, told The Standard: “If this [Merge] is going and everything is going well, we are entering a new era… Ethereum is the infrastructure for many companies to run their blockchains, so if something goes wrong we have the industry shutdown… it will quite difficult for the industry to survive this period.”

With this, Hayes also set the record straight on Ethereum. He said, “The reason Ethereum is valuable is because people use it,” indicating that a hard-wired PoW chain after The Merge will likely fail without users because “service providers or major decentralized applications of Ethereum all follow proof – of-stake Merge.


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