Chainalysis predicts that ETH may detach from other cryptocurrencies after the Merge as a result of its staking benefits.
The price of Ether (ETH) may decouple from other crypto assets after the Merge, according to crypto analytics company Chainalysis, with staking yields perhaps driving significant institutional adoption.
In a paper published last week, Chainalysis stated that the impending Ethereum update would give institutional investors access to staking yields resembling those of certain securities, such as bonds and commodities, while also becoming significantly more environmentally friendly.
Given that treasury bond yields give substantially less in contrast, the paper stated that ETH staking is likely to pay stakers a 10-15% yield yearly, making ETH a “enticing bond alternative for institutional investors.”
“Ether’s price could decouple from other cryptocurrencies following The Merge, as its staking rewards will make it similar to an instrument like a bond or commodity with a carry premium.”
Chainalysis data shows that from fewer than 200 institutional ETH stakers in January 2021 to about 1,100 as of August this year, the number of institutional ETH stakers—those with $1 million or more in ETH staked—has “been gradually expanding.”
The firm remarked that if this number increases at a quicker pace following The Merge, this should confirm the theory that institutional investors “do indeed see Ethereum staking as a good yield-generating strategy.”
The Chainalysis analysis predicts that after The Merge, ETH will attract more institutional and retail traders since the upcoming update will make staking a much more appealing investment instrument.
ETH that has been staked is currently trapped in a smart contract that cannot be released until the Shanghai upgrade, which will occur six to twelve months after the Merge.
Due to the lack of liquidity in the staked ETH market, some staking service providers offer synthetic assets that approximate the value of the staked Ether. The disadvantage, according to the firm, is that “those synthetics don’t always maintain a 1:1 peg.”
“The Shanghai upgrade […] will allow users to withdraw staked Ether at will, providing more liquidity for stakers and making staking a more attractive proposition overall,” the report reads.
Another factor highlighted is that the Ethereum blockchain’s proof-of-stake (PoS) transition will see its energy consumption requirements drop by as much as 99% following the upgrade, according to the Ethereum Foundation. The Merge is expected to go live within the next 36 hours.