The World After The Merge: Should Ethereum Classic’s Price Rise Be Expected

Once-popular and in recent years half-forgotten, the Ethereum Classic (ETC) cryptocurrency recently posted a substantial rally. In the last 30 days the asset’s price has risen by more than 100%.

The price revived amid statements by Ethereum developers and the approaching migration date to the Proof-of-Stake (PoS) consensus algorithm.

Recently, a major mining pool AntPool announced investments of $10 million in the Ethereum Classic ecosystem. This further boosted the rally.

Many community members are wondering whether miners will switch to Ethereum Classic after The Merge. If so, how will this affect the cryptocurrency’s price, given that hash rate and difficulty often correlate with price.

Overview of Ethereum Classic

Ethereum Classic emerged after the collapse of the infamous The DAO project in June 2016. This cryptocurrency is a byproduct of the controversial Ethereum hard fork intended to allow investors to reclaim their funds.

“We, as a community of sovereign individuals, were united by a common vision of continuing the original Ethereum blockchain, which is truly free from censorship, fraud or third-party interference,” says in the Ethereum Classic Declaration of Independence.

Many at the time called the project ‘dead on arrival’, but that proved far from the case. The cryptocurrency has long held mid-range market capitalisation. Its current competitors in the rankings include Litecoin, Monero, TRON and other well-known projects.

After the hard fork, “uncompromising Ether” was almost identical to the fork. Over time, however, differences between the projects became more pronounced.

In March 2017, Ethereum Classic developers implemented a monetary policy somewhat akin to Bitcoin. It entailed a fixed coin supply and a deflationary emission trajectory.

This became a substantial difference from the second-largest cryptocurrency by market cap. The latter was characterised by monetary flexibility, breeding uncertainty.

The total supply of Ethereum Classic is capped at 210.7 million tokens. Miner rewards decrease every 5 million blocks.

The main distinction between the projects lies in the commitment to the “original Ether” to the Proof-of-Work algorithm. Ethereum developers, by contrast, since 2014 have been exploring PoS possibilities.

ETC vs ETH

Ethereum Classic has not become a strong rival to Ethereum. It is developed by fewer developers, and the ecosystem does not have many applications.

According to DeFi Llama, TVL of the Ethereum Classic ecosystem stands at just $250 419 (as of 31.07.2022).

The top spot in the ranking is HebeSwap. It is a fork of the leading Ethereum exchange Uniswap. Second and third places are also DEXes — ETCSwap and Swap Cat.

Nevertheless, Ethereum Classic has managed to implement scaling and interoperability solutions — Connext State Channels and ChainBridge by ChainSafe. The hash rate of the “original Ether” is not high. This is one of the main reasons attackers managed to conduct a series of 51% attacks in 2020. Developers increased network resilience with the activation of the Thanos hard fork.

However, according to analyst Wolfie Zhao, ETC’s hashprice has recently drawn close to Ethereum’s. In other words, amid rising price, the profitability of mining the “original Ether” has become comparable to Ethereum.

On-chain activity indicators also differ dramatically, serving as key gauges of demand for cryptocurrencies and ecosystem applications.

The difference in the number of active addresses is also striking.

Assets also diverge considerably in other fundamental metrics, including trading volume and market capitalization.

Ethereum Classic has a significantly higher Sharpe ratio. This implies that potential returns better compensate the risk accepted by investors.

In the last market cycle, Ethereum Classic fell further relative to its all-time high (ATH) than Ethereum. Yet in the summer of 2022 the “original Ether” recovered more actively.

Community Opinions

Journalist Colin Wu explains the continuing price rise of Ethereum Classic by investors’ confidence in the ability of the “original Ether” to capture substantial hash rate and a share of users from the ecosystem of the second-largest cryptocurrency.

Wu also noted that Ethereum Classic is backed by giants such as Digital Currency Group (DCG). The Ethereum Classic Trust fund—the third-largest asset by DCG’s Grayscale Investments.

Commenting on AntPool’s investments in the Ethereum Classic ecosystem, DCG chief Barry Silbert wrote that he is genuinely glad about The Merge in Ethereum.

Wu stressed that the Ethereum Classic developer community is highly fragmented. It lacks leaders like Vitalik Buterin and a centralized force capable of advancing the project.

“There are currently virtually no mature Ethereum projects to deploy in the ETC ecosystem,” the journalist noted.

According to him, miners and hardware manufacturers are the most active in driving the switch to the “original Ether.”

“Rumour has it that mining equipment worth about $5 billion will become idle after The Merge,” Wu wrote.

The journalist also expressed concern that the migration of leading miners to Ethereum Classic could instantly create 51% attack risks. This could lead to a proliferation of forks.

In Wu’s view, Ethereum Classic is currently the best alternative to Ethereum for attracting hash rate, users, capital, dapps and “motivated organizers like Sam Bankman-Fried.”

Ethereum founder Vitalik Buterin stated that ETC is “a very good chain” for PoW supporters.

There are also other intriguing developments. For example, Chinese miner Chandler Guo, a supporter of Ethereum Classic, is assembling a group of developers to support a PoW-based Ethereum fork after The Merge.

Just over half of the participants in a Galois Capital Twitter poll believe the The Merge will go smoothly.

However, a third of respondents think that a fork — ETH1 based on PoW — will indeed be created during the upgrade, advocated by Chandler Guo.

Nearly 52% of respondents believe hash rate will shift to Ethereum Classic. 48.2% are confident that after The Merge the aforementioned ETH1 on PoW without a ‘difficulty bomb’ will become relevant.

Galois Capital representatives themselves noted that ETH1 has a much better-developed DeFi infrastructure on-chain than ETC and significantly higher on-chain activity.

On Reddit, heated discussions also emerged. Many community members are skeptical of the potential fork. In their view:

• ETH1 will not attract users;
• DeFi and NFT sectors will crash on the PoW chain;
• traders will dump ETH1 tokens that emerged from the contentious fork to increase stake in ETH.

Galois Capital analysts also believe exchanges will favour ETH2-based instruments.

Conclusion

The transition of Ethereum to PoS is imminent. As the Merge nears, fierce debates intensify.

Many miners show support for Ethereum Classic. Some, including the notorious Chandler Guo, advocate backing a fork — ETH1 on PoW. The “Luddites” of the crypto world can understand: billions of dollars’ worth of hardware must be employed somewhere after the most significant update in Ethereum’s history.

It is possible that heightened interest in Ethereum Classic will spur ecosystem development and hash rate growth. The latter often correlates with price and helps crypto assets resist 51% attacks.

On the other hand, the likely success of ETH1 on PoW could dampen demand for Ethereum Classic and its ecosystem’s products.

In any case, the community awaits many interesting events and unforeseen twists.

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