Ethereum leads crypto rally on software-upgrade optimism

Cryptocurrencies rallied for a second day, with Ethereum-related tokens leading gains, as risk aversion eases and optimism grows about the long-anticipated software upgrade of the blockchain network.

Ether, the native token of Ethereum, jumped as much as 11 per cent to $US1,783, and surged 29 per cent on an intraday basis since Tuesday, the biggest two-day gain since January 2021. The digital token is still down about 50 per cent this year.

Bitcoin rallied as much as 6.2 per cent to $US24,195. Its two-day gain of 15 per cent is the largest on an intraday basis since June 20. The largest digital token by market value is down 48 per cent since December.

The rally signals growing confidence that Ethereum’s move from the current system of using miners to a more energy-efficient system using staked coins is nearing. The switch to this so-called proof-of-stake system is expected to take place in September. This week, Ethereum developers have signaled continued progress in testing the new system, and they are holding a series of events for prospective stakers and other community members in the coming weeks.

“The Ethereum merge will turn the protocol into a proof-of-stake chain and provide more utility for the token, changing the tokenomics, and providing excitement for further decentralization for Ethereum going forward,” said Paul Veradittakit, a partner at Pantera Capital.

More Ethereum-related assets extended gains Thursday. Uniswap, a decentralized crypto exchange that’s most popular on Ethereum, saw its token jump nearly 36 per cent. Ethereum Classic — which branched out from Ethereum several years ago — rallied nearly 38 per cent, and Lido DAO’s LDO token rose about 53 per cent, according to CoinMarketCap. Lido issues a derivative of Ether.

Work on the Merge has been going on for years, and it’s been delayed many times. It was most recently expected to take place in June, but was delayed once again.

Altcoins can sometimes outperform the original token during risk-on stretches, though they can also be much more volatile on the way down — they tend to suffer greater losses during tougher times.

Meanwhile the broader crypto market continued to benefit from traders dialing back wagers on Federal Reserve hikes after an ugly economic reading fueled concern about a US recession. The Fed’s attempt to control inflation has spooked crypto investors this year as the central bank raises interest rates, turning investors away from riskier investments such as crypto.

“Market is outperforming right now on macro outlook,” said Katie Talati, director of research at Arca.

“Many are now speculating that the Fed will take a more dovish stance and will slow any further rate hikes for this year.”

Bloomberg