The Merge Trade - The Daily Gwei #517

The Merge is coming - we’re all well aware of that by now - but the question on everyone’s mind is how to play the event from an investment perspective. As Hal Press from NRD outlines below, The Merge is not a “trade” - it is a long-term investment that will be influenced heavily by a structural shift in ETH flows as well as many things I’ve outlined previously in this post.

NRD @NorthRockLP

I think people misunderstand what the Merge represents sometimes. This is not a trade where you must try to time your entries and exits perfectly. This is a structural shift. It’s an investment more than a trade. These flows are never reversing.

5:56 AM ∙ Jul 17, 2022

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For those who haven’t heard yet, the Ethereum mainnet is more than likely going through the merge transition in mid-late September with the final public testnet (Goerli) running through it around August 10th. This means we are really just 2 months away from Ethereum becoming a full Proof of Stake network and newly issued ETH dropping by about 80-90%. And as Hal notes above, this is a structural shift in the flows of ETH as an asset - we are going from millions of dollars worth of freshly mined ETH being force-sold each day to basically 0 sell pressure (since withdrawals of staked ETH and rewards aren’t enabled at time of The Merge).

Given these facts, Hal is right to say that this isn’t a trade and that a long-term investment horizon should be taken when buying ETH. I mean, I’ve personally been buying ETH since basically day 1 in anticipation of a Proof of Stake Ethereum and I also wrote about the issuance reduction that was coming all the way back in January of 2019. Obviously it’s taken a lot longer for Ethereum to transition to Proof of Stake than we’ve all been led to believe, but it really is just around the corner this time.

There are many ways people are trying to get exposure to ‘The Merge trade’ such as just buying ETH itself, buying staked ETH tokens (stETH, rETH), buying governance tokens for staking services (RPL, LDO, SWISE) and even buying competitor layer 1 tokens as a “hedge” against some sort of “failed merge”. I’ve even seen people saying that they’re buying ETC (Ethereum Classic) because all the miners