Post-merger crypto firms grapple with fallout on ether
With Ethereum’s Merge upgrade to Proof of Stake now complete, crypto companies are wondering what to do with the new asset spinoffs.
Early Thursday morning, Ethereum, the second largest blockchain, completed its merger and eliminated the protocols crypto mining need of 99.95%, which accounted for 0.2% of global electricity consumption.
For the Ethereum GPU-mining niche industry, which brought in a large chunk of the total $19 billion generated from protocol mining last yearthe long-awaited upgrade meant that “all those miners are out of work,” Kevin Zhou, co-founder of hedge fund Galois Capital, told Yahoo Finance.
“And they really didn’t want to go quietly into the night,” Zhou added.
The problem, according to data from Chainalysis, is that the remaining GBU-mining proof-of-work opportunities are only 2% of Ethereum’s size.
Led by veteran crypto gamer Chandler Guo, 24 hours after the merger, a group of Ethereum miners “forked” the protocol’s codebase.
Forking is unique to the speculative, open-source technology that underpins the world of digital coins.
Blockchain forking is a kind of software stunt where a group of people decide to separate themselves from the larger community of a protocol. When this happens, the fork group creates a separate copy of the protocol, which in turn duplicates all of its assets.
In the case of Ethereum, this created a new coin called “EthereumPOW”. Since its inception, the so-called “forkcoin” (ETHW-USD) faced strong sales – 84% – over the past 5 days from Saturday morning and is currently trading below $5, around 38 cents on the dollar against the price of ether.
“Personally, I don’t really see why we need another Ethereum in the mix,” Jean-Marie Mognetti, CEO of digital asset manager CoinShares told Yahoo Finance.
As Mognetti pointed out, there is already another proof-of-work version of Ethereum known as Ethereum Classic (ETC-USD). The blockchain and its native token were born in 2016 following the major Ethereum DAO hack.
According to data from Yahoo Finance, Ethereum Classic has fallen over 14% in the past 5 days after rallying 29% since July 26. It holds more than $4.4 billion in market capitalization and is trading 8% lower than its level at the start of January.
To complicate matters further, the new EthereumPOW coin is not even the only forkcoin to come since the conclusion of the Ethereum merger.
A few hours after the first fork, Justin Sun, founder and CEO of the Tron Foundation, which originally supported Guo’s cohort, forked Ethereum again, creating Ethereum Fair (ETF), which is trading at 9 cents on the dollar against ETH and according to Mognetti “will probably be a nightmare”.
Regardless of what Mognetti and others inherently think of the new coins, the CEO of CoinShares is among many crypto companies that have yet to decide whether to hold or sell the free cryptocurrencies they receive.
On at least a handful of past occasions, crypto investors have viewed the ability to obtain forked coins to hold an underlying crypto as a sort of “free payday,” explained Nico Cordeiro, CIO of the fund. quantitative crypto Strix Leviathan, at Yahoo Finance.
The notion was strong enough before the merger to have contributed to the drop in the price of ether, he noted.
“There was very, very high demand to get short Ethereum,” he suggested, adding that it was one side of a trade for investors to grab possible new coins.
Since forkcoins are proportional to an investor’s holdings of the original cryptocurrency, it is difficult for fund managers to pass on opportunity even when a new token has minimal promise, Cordeiro explained.
“[Ethereum] is basically a giant experiment with hundreds of billions of dollars, so it’s natural to want to participate in some kind of backup, ”he added, pointing out the general regulatory uncertainty of crypto assets.
But receiving fork coins is not always freeMiles Brooks, director of tax strategy at crypto tax firm CoinLedger, told Yahoo Finance.
“If the value of the token decreases significantly after the PoW fork and after you have control of it, which could be likely. Investors may have a tax bill to pay but potentially not enough assets to pay it,” Brooks said.
As for what to do with those assets that most ether holders will receive, CoinShares’ Mognetti told Yahoo Finance, at least for his business, that it’s too early to make a call. They can gauge the “network health” of the new protocol by monitoring its crypto-mining hashrate, but ultimately the final decision will come down to “a bit of intuition.”
“I can’t tell you where it will go, but if there were to be a benefit, we want to make sure our customers get some of it,” he added.
David Hollerith is a senior reporter at Yahoo Finance covering cryptocurrency and stock markets. Follow him on Twitter at @DsHollers