Blockchain Founder on Why You Shouldn’t Buy Ether

• Richard Heart says the merger is bullish for Ethereum in the long term.
• In the short term, there are too many negative variables that play against the price of ether.
• They include technical glitches, bitcoin’s price and the broader economic environment.

A milestone event for the crypto sector is fast approaching.

In mid-September, Ethereum is expected to make its long-awaited upgrade known as Merge. The switch will take the crypto’s blockchain from proof-of-work (PoW) to proof-of-stake (PoS) which is supposed to reduce energy use by more than 99%.

Removing miners from the equation will also reduce operating expenses. The value generated from fees will instead be distributed to those who stake the ether. The rest will be burned, which could make the crypto deflationary. Hal Press, founder of digital hedge fund North Rock Digital, compares the new distribution structure to dividend yields and share buybacks in stocks.

Even though we’re in a crypto winter, old habits die hard. The shift has caused some investors to revert to their old ways of buying the rumor and selling the news. Ether hit its lowest price yet in mid-June when it broke below $1,000, down about 80% from its all-time high. But by mid-August, it had drained $2,000 before falling back down. As of Wednesday, it was trading near $1,567. Extreme volatility in crypto is like butter to bread, it is expected.

The upgrade is actually positive news for Ethereum. It will stabilize and increase the price of ether in the long term because the selling pressure from miners trading their rewards to cover operating costs will be removed, says Richard Schueler, who is publicly known by the surname Heart. What it won’t do is reduce fees, which investors need to understand.

Heart says buying Ether now is just a bad strategy. In the short term, there are too many moving variables that can play against the price of ether.

He is the founder of Hex, an ERC20 token launched on Ethereum’s network designed to replace high interest savings accounts and act as a store of value. He is also working on a new layer-1 called PulseChain, a controversial project that is supposed to be a replicated fork of Ethereum that copies a holder’s ether to itself.

He told Insider that if Ethereum’s upgrade has problems, Hex would also have problems. Like any software upgrade, things can go wrong. This is one reason why he does not recommend making speculative bets before the merger.

The risk is not limited to a drop in price. In traditional stocks, investors speculate all the time. They may even short a stock if they believe the underlying company will fail. However, a failed blockchain upgrade may not even mean a price drop. Instead, it could lead to a freeze on transactions, he noted.

There is also a strong possibility that bitcoin’s price will plunge even further, which historically pulls down the price of ether as well. Bitcoin and ether have consistently had a positive correlation since late 2017, and with a coefficient of 0.83, both tend to rise and fall together, according to Coin Metrics data.

First, bitcoin still hasn’t fallen by up to 85% from its all-time high, a pattern observed during crypto winters. In an earlier interview with Insider, Heart said bitcoin would need to land anywhere between $10,600 to $10,350 to bottom out. This would mean that the Ether bottom price is around $750.

Second, crypto’s previous winters did not occur during major financial turmoil, he added. This time, however, the Federal Reserve is not done fighting inflation, which means that interest rates will continue to rise. And as long as rates go up, the stock market and crypto will only go down, he said.

Third, Heart points out that Grayscale Bitcoin Trust (GBTC), which buys bitcoin and then sells shares, trades at about a 33% discount to the value of bitcoin. This removes the demand for actual bitcoin, in his view.

“The dream would be for them to stop raising rates. Bitcoin does its 85% dump, and the Grayscale discount goes away,” Heart said.

Finally, the bitcoin community is still waiting for the holdings of hundreds of thousands of bitcoins to become available when US and Japanese authorities release seized coins from Silk Road founder Ross Ulbricht and Tokyo-based bitcoin exchange Mt. Gox.

At some point, bitcoin may diverge from the stock market or ether may diverge from bitcoin, Heart noted. However, this will only happen when everyone has finished selling.