Investors have been designing strategies to deal with any volatility resulting from the Ethereum Merge. Here are some to consider.
On September 15 and 16, the long-awaited switchover of the Ethereum network from proof-of-work to proof-of-stake is scheduled to take place. For the past year, traders and analysts have been debating potential outcomes for the upgrade and potential trading tactics.
Let’s examine three options traders and investors have.
To obtain the anticipated “hardfork” token, Hodl ETH.
The first tactic is quite straightforward. The simplest course of action for traders is to purchase Ether (ETH) on the spot market, hold it in their exchange wallet, or use any platform or wallet that will allow forked tokens, and wait for the expected PoW token.
When Bitcoin bifurcated into Bitcoin Cash back in 2017, holders of Bitcoin received an equal amount of BCH, which once traded for $1,650 per token. BCH rose to a peak of $800 during the bull market’s zenith in 2021.
Finding exchanges that enable the hard forks would be the best way to sell PoW coins from those businesses that decide to ignore the Merge. If your country requires you to pay taxes, don’t forget to do so.
Once people understand that speed to market is irrelevant in the face of centralization, censorship and custodians, it will be too late.
Protocol level censorship is coming. More custodians are coming.
How much power do you think the US has over a publicly traded company?
— $nadjritzcalod (@nadjritzcalod) August 16, 2022
It’s also possible that ETH PoW coins won’t undergo a pump and dump right away. A miner-led PoW ETH split could acquire traction if projects and developers are prepared to create DApps on the blockchain, despite the fact that many analysts are warning about the risk of centralization on a PoS Ethereum network.
Short futures and long Ethereum
Let’s assume you have some questions or concerns regarding Ethereum’s ability to complete the Merge. Several individuals have. It’s understandable to be concerned about a fundamental shift in the second-largest cryptocurrency market after this hellish year in which Bitcoin (BTC) lost all of its yearly gains, Wonderland Money collapsed, Terra (LUNA)—now Terra Classic (LUNC), Celsius, and Three Arrows Capital roughed everyone up.
Investors that have mixed feelings about the Merge can choose to hedging. One would essentially be long Ethereum, which many holders are by default and have been doing for years, or at least since the most recent $880 “low.”
Holding a short position in futures or options contracts while long Ether enables one to hedge against losses in the event that the price of the cryptocurrency falls significantly and, ideally, to acquire the PoW hard fork tokens, which should further offset losses on the spot position.
Fearful Merge traders may be able to sleep better at night and possibly close things out in the black if they get the chance to recover some of those “losses” after obtaining the unconfirmed PoW tokens.
Keep trading stablecoins and stick to the trend.
The “free” PoW hardfork tokens may not be a top priority for some investors because the risk of trying to trade the Merge outweighs the benefit.
These investors may think about simply sticking with stablecoins and following the strongest trend offered by ether. In this case, one would trade either daily breakouts and breakdowns or in the direction dictated by the short-term trend.
Many traders believe that the Merge will be a buy the rumour, sell the news kind of event, and others believe that the price will drastically drop after the Merge is through.
When this is your viewpoint, then creating and trying to implement a strategy around this anticipated volatility while seated in stables is rather straightforward. If these traders are sincere, they could then buy post-dip ETH, and if the other PoW tokens generate significant trading activity on exchanges, they could also take advantage of the price fluctuations in the hardfork tokens.
The author’s thoughts and opinions alone, not necessarily those of Cryptomufasa.com, are conveyed in this article. Every investment and trading action carries risk, therefore before making a choice, you should do your own study.