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August 30, 2022

An Investors Playbook for the Ethereum Hard-fork

(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

When I started hearing rumors the past few weeks of a potential Ethereum hard-fork following the merge, I must say, I was excited. Some background:

After witnessing the Bitcoin/Bitcoin Cash hard fork in 2017, I saw firsthand how tribal the crypto space can be on topics that affect their personal financial interests, and people had their crypto net worth double overnight. The Ethereum 2.0 has been a long-awaited upgrade, teased for the better part of 5 years, and it’s a highly-anticipated leap for the industry as a whole. Leave it to the crypto space to create some drama!

With every fork, the Ethereum Merge will have 2 sides.

On one hand, the winners are holders of Ethereum, like you & me. We’ll be able to stake our tokens and earn the mining rewards as passive income indefinitely without investment in large miners. On top of this, we could also get double the ETH should a hard-fork occur! Wohooo to the little guys!

However the other hand are the multi-billion dollar ETH mining enterprises whose business effectively will go to 0 overnight, and they don’t plan to go quietly. In order to squeak out as much profit as possible before retiring their Nvidia chips, these miners are plotting a hard-fork, in which the original Ethereum chain, called ETH PoW, will remain.

Don’t be fooled though, hard-forks often lead to Zombie-chains, in which the chain exists, however, there is very little usage or developer activity on the chain itself. If you couldn’t guess, this can lead to lower prices as well.

How I’m going to play this fork as an investor (Not financial advice):

  1. BEFORE THE MERGE, KEEP YOUR ETH ON-CHAIN IN NON-CUSTODIAL WALLETS. Not all centralized exchanges can/will give you your POW assets.

  2. There will be a lot of trading volume in the 1-3 days following the fork. Most investors will dump the forked ETH ASAP and the price will likely not recover. It pays to be fast. ;)

  3. I expect the ETH 2.0 price to perhaps dump temporarily as investors “sell the news”, but long-term the fundamentals of the merge should drive the price higher.

Something to note is the strong tokenomics of ETH post-merge. Today Ethereum’s issuance is uncapped, so unlimited Ethereum could be minted, which is very different from Bitcoin’s 21 million cap.

However, Ethereum could become deflationary, as issuance post-merge will drop by 90% & as EIP-1559’s burn mechanic continues to reduce supply. More on this in a separate blog post.

NFTs will also be duplicated on the ETH 2.0 chain, so if you’re a Bored Ape Holder, you’ll now have an ape on both chains. People on Twitter are speculating if there will be an NFT black market on the ETH PoW chain since the original NFT was minted on the original chain. This will be interesting to see unfold.

You can follow one of the accounts behind the ETH PoW hard-fork on Twitter here.

Get your popcorn ready for some crypto history!

Hayden Todd

Product Manager at Ember Fund

Investing in BTC since 2016


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