Is Ethereum Merge a Flop?
It is a new week and we would like you to join us as we review major financial news in the past week and also have a sense of what to expect in coming weeks.
Last week was actually an anticlimax in more than one ways. First was the expectation that Inflation wahala in the United States is now abating, a development that is expected to make the Federal Reserve Bank (their CBN) to slow down on their interest raising spree. The inflation forecast for August was 8.1% but the actual figure released last week was 8.3%. Investors quickly cancelled all their greedy bets , which saw major stock indexes like NASDAQ and S& P 500 losing 7% and 6% respectively. Of course, cryptos were not spared as Bitcoin fell below $20,000 again.
A similar “flop” was the Ethereum Merge of September 15, 2022, which many analysts thought would be the catalyst required for Ethereum to topple bitcoin as the No 1 cryptocurrency. The merge effectively makes Ethereum to run on Proof of Stake protocol, another way of saying that only processors with adequate collateral will be allowed to confirm transaction on the Etheruem network. Which also means that energy consumption on the network will be reduced by over 99%.
This is a big deal for Ethereum because it means the platform is now able to process more transaction at very low costs. Something that was technically impossible when it was running on the Proof of Work protocol. Ethereum is actually a computing platform that hosts other projects. Many of existing projects are the leading names in Decentralized Finance(DEFI), an innovation that promises to bring financial services closer to the people. A number of these projects are already rendering borderless banking services to users. However, the price of Ethereum actually fell from about $1600 on the merge date to about $1380 at the moment.
This highlights an important point in dealing with most assets. Investors often earn from using or trading an asset or by doing both. A landlord earns rents from the use of land and can also make profit by trading the land. There are times that market conditions become unfavourable, but a good investment keeps yielding income from its use, regardless of market conditions. Ethereum’s use case has just improved tremendously , but the market is pricing it down because of the prevailing economic challenges. Many investors have made fortunes by learning how to profit from the use of their assets and also profit from market exuberance whenever it exists.
On the local scene, inflation rate increased from 19.64% to to 20.52% in July 2022. No thanks to the ongoing forex scarcity which has affected the price of petroleum products. The CBN is expected to raise interest rates in reaction to this development, which is why the local stock market has been declining as investors sell their stocks to enjoy higher interest rates in Treasury Bills, Bonds etc.
One would ask, when will all these wahala end sef? A resolution of the war between Russia and Ukraine will be a good sign, but none of the warring parties is willing to blink first. There are other simmering crises elsewhere: China and Taiwan bickering , environmental challenges like the flood in pakistan etc. It appears that the world order as we have always known it, is about to change. Therefore, all we can do it is to understand the risks we face whenever we are making investment decisions and also manage them effectively.