The Key Events That May Determine ETH Price Reaction
Posted On 17/08/2022
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As we near the Ethereum merge, what scenarios will affect ETH sentiment, bullish or bearish and what can be used to determine the success of the merge?
The Goerli testnet merge (the last testnet) was successful, which paved the way for further gains in ETHUSD. Ethereum is due to transition from proof of work to proof of stake in mid-September, which has been the catalyst for the recent market sentiment.
Exploring ETH options open interest is providing a glance into investors’ expectations:
source: coinglass
Ethereum options open interest rose significantly, which is reflecting the renewed interest in the cryptocurrency. The top strike prices for the call options at the time of this writing are $3,000 (ETH 407,730), $3,500 (ETH 323,570) and $4,000 (ETH 387,730).
The debate among crypto analysts is whether Ethereum recent gains are as a result of buy the rumour, sell the news or the merge will indeed be the starting point of a larger bullish retracement.
Ethereum merge predictions are mixed, it is important to understand what is affecting the price and what events are seen as bearish and bullish.
Before diving into the possible scenarios; it is important to be aware that exchanges may pause ether deposits and withdrawals during the merge, which will take place in September 2022.
Coinbase Will Pause ETH Deposits and Withdrawals
Compound Labs Co-Founder Robert Leshner described the merge as swapping a spaceship’s engine in mid-flight. As the merge takes place increased activities in bots is likely to take place.
Coinbase is concerned the becon merge may not be as smooth as expected, announcing that is will pause ETH and ERC-20 token deposits and withdrawals during the merge.
‘During the Merge, Coinbase will briefly pause new Ethereum (ETH) and ERC-20 token deposits and withdrawals as a precautionary measure.
‘Although the Merge is expected to be seamless from a user perspective, this downtime allows us to ensure that the transition has been successfully reflected by our systems.
‘We do not expect any other networks or currencies to be impacted and expect no impact to trading for ETH and ERC-20 tokens across our centralized trading products.’
source: coinbase
Some are expecting other crypto exchanges to follow suit. When Luna 2.0 was released, Terra Classic validators were reporting the price of Luna 2.0 by error.
Terra classic was trading at $0.0013 while Luna 2.0 was trading at $9.83. Validators run an old version of the oracle software, which lead to the exploit.
Pools were drained as a result; millions of dollars were earned by bad actors that exploited the ecosystem.
Layer 2 Scaling Solutions May Prevail
Ethereum layer 2 solutions such as Polygon (Matic), Optimism (OP) and Arbitrum (Arbitrum has no token) may continue prevailing despite Ethereum transition to proof of stake.
Over the past year ETH gained $9.9 billion in revenue compared to a total of $78 million on the above layer 2 mainnets. The merge may cause some volatility as at the time of this writing ETH layer 2 Web 3.0 solutions are highly correlated to ether price.
The parent company of Mercedes Benz (Daimler Group) announced it will launch a data sharing platform on Polygon.
The data sharing platform is called Acentrik. It will allow users to trade data on the platform such as insurance details, scientific trials and more. Each data set will be presented by a non-fungible token (NFT)
Coca-Cola recently launched its NFTs on the Polygon network. Despite the upcoming merge businesses still opt for layer 2’s.
Lido Finance announced it has partnered with KyberSwap Elastic (automated market maker, supplies liquidity providers with deeper liquidity) to improve liquidity
Liquidity
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash. The most liquid asset of all is cash itself. · In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent varying degrees of liquidity. This can be differentiated as market liquidity or accounting liquidity.· Liquidity refers to a tangible construct that can be measures. The most common ways to do so include a current ratio, quick ratio, and cash ratio. What is the Definition of Liquidity? Liquidity is a common definition used in investing, banking, or the financial services space. Its primary function is to ascertain how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? By definition, in terms of liquidity, cash is unequivocally seen as the most liquid asset in an economic sense. This is due to its widespread acceptance and ease of conversion into other assets, forms of cash, or currencies, etc. All other liquid assets must be able to be quickly and efficiently converted into cash, i.e., financial liquidity. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. By extension, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Liquidity Spectrum Liquid assets can be defined primarily as either cash on hand or simply an asset that can be easily or readily converted into usable cash. It is important to note that cash is not uniformly liquid for several reasons. The below examples encompass all types of assets and their corresponding level of liquidity. Examples of Liquid Assets or Securities A good example of this is the US dollar, which is recognized or accepted globally, and backed by the US government or Federal Reserve Bank. Other major forms of cash include Euros, or major currencies. This differs notably from the legal tender in many emerging countries or others for political or economic reasons. Cash aside, assets such as stocks or equities, bonds and other securities, money market assets, marketable securities, US treasuries or T-notes, exchange-traded funds (ETFs), a savings account, and mutual funds serve as the most liquid assets. These are generally assumed to be quick assets. Each of these assets can be converted into cash either instantaneously, or via any brokerage platform, exchange, etc., often in as little as minutes or seconds. As such, these assets are liquid. Examples of Illiquid Assets or Securities Conversely, illiquid assets still retain importance and value, though are much more difficult to convert into cash. Common examples of this include land or real estate, intellectual property, or other forms of capital such as equipment or machinery. In the examples above, liquid assets are assumed to be convertible into cash without substantial fees or delays in time. Illiquid assets on the other hand often suffer from fees or additional conversion costs, processing times, ultimately creating a price disparity. The best example of an illiquid asset is a house. For many individuals this is the most valuable asset they will own in their entire lives. However, selling a house typically requires taxes, realtor fees, and other costs, in addition to time. Real estate or land also takes much longer to exchange into cash, relative to other assets. Types of Liquidity Overall, liquidity is a broad term that needs to be defined by two different measures: market liquidity and accounting liquidity. Both measures deal with different constructs or entities entirely, though are useful metrics with regards to individuals or financial markets. Market Liquidity Market liquidity is a broader term that is used by a market maker to measure the ease of which assets can be bought and sold at transparent prices, namely across exchanges, stock markets, or other financial sectors. This can include among others, a real estate or property market, market for fine arts and collectable, and other goods. Market Liquidity Example As mentioned above, certain financial markets are much more liquid than others. The degree to which stocks from large companies or foreign currencies can be exchanged is much easier than finding a readily available market for antiques, collectables, or other capital, regardless of utility. Overall, a stock market, financial brokerage, or exchange is considered to have the high market liquidity. This is because the difference between both the bid and ask prices between parties is very low. The lower the spread between these two prices, the more liquid a given market is. Additionally, low liquidity refers to a higher spread between two prices. Why Liquidity Varies and What Does Liquidity Mean in Stocks? Every asset has a variable level of liquidity meaning this can change depending on what is being analyzed. One can define liquidity in stocks or stock markets in the same way as in foreign exchange markets, brokers, commodities exchanges, and crypto exchanges. Additionally, how large the market is will also dictate liquidity. The foreign exchange market for example is currently the largest by trading volume with high liquidity due to cash flows. This is hardly surprising given that forms of cash or currencies are being exchanged. What is Liquidity in Stocks? A stock’s liquidity refers to how rapidly shares of a stock can be bought or sold without largely impacting a stock price. By definition, liquidity in stocks varies for a number of reasons. Stocks with low liquidity may be difficult to sell and may cause you to take a bigger loss if you cannot sell the shares when you want to. In finance, the most liquid assets are always the most popular. By extension, if a spread between buyers and sellers increases, the market is considered to be less liquid. A good example of this is the real estate or property market. While highly valuable, there are large disparities between the purchase price and selling price of property, as well as the time associated in making these transactions, and additional fees incurred by other parties. Liquidity providers play a key role in this regard. Accounting Liquidity Unlike market liquidity, accounting liquidity measures something different entirely. Accounting liquidity is a measure by which either an individual or entity can meet their respective current financial obligations with the current liquid assets available to them. This includes paying off debts, overhead, or any other fixed costs associated with a business. Accounting liquidity is a functional comparison between one’s current liquid assets and their current liabilities. In the United States and other countries, companies and individuals have to reconcile accounting on a yearly basis. Accounting liquidity is an excellent measure that captures financial obligations due in a year. Accounting Liquidity Example Accounting liquidity itself can be differentiated by several ratios, controlling for how liquid assets are. These measures are useful tools for not just the individual or company in focus but for others that are trying to ascertain current financial health.As an example, accounting liquidity can measure any company’s current financial assets and compare them to its financial obligations. If there is a large disparity between these figures, or much more assets than obligations, a company can be considered to have a strong depth of liquidity.How to Calculate Liquidity Liquidity is of importance to investors, financial market participants, analysts, or even for an investment strategy. Calculating liquidity is a measure of firm or individual’s ability to utilize or harness current liquid assets to current cover short-term debt. This can be achieved using a total of four formulas: the current ratio, quick ratio, acid-test variation, and cash ratio. Current Ratio The current ratio is the easiest measure due to its lack of complexity. Quite simply, the current ratio measures a firm or individual’s current assets or those than can be sold within a calendar year, weighed against all current liabilities. Current Ratio = Current Assets/Current Liabilities If the current ratio’s value is greater than 1, then the entity in question can be assumed to reconcile its financial obligations using its current liquid assets. Highly liquid assets will correspond to higher numbers in this regard. Conversely, any number less than 1 indicates that current liquid assets are not enough to cover short-term obligations. Quick Ratio A quick ratio is a slightly more complex way of measuring accounting liquidity via a balance sheet. Unlike the current ratio, the quick ratio excludes current assets that are not as liquid as cash, cash equivalents, or other shorter-term investments. The quick ratio can be defined below by the following: Quick Ratio = (Cash or Cash Equivalents + Shorter-Term Investments + Accounts Receivable)/Current Liabilities Acid-Test Ratio The acid-test ratio is a variation of the quick ratio. The acid-test ratio seeks to deduct inventory from current assets, serving as a traditionally broader measure that is more forgiving to individuals or entities. Acid-Test Ratio = (Current Assets – Inventories – Prepaid Costs)/Current Liabilities Cash Ratio Finally, the cash ratio further isolates current assets, looking to measure only liquid assets that are designated as cash or cash equivalents. In this sense, the cash ratio is the most precise of the other liquidity ratios, excluding accounts receivable, inventories, or other assets. A more precise measure has its uses, namely regarding assessing financial strength in the face of an emergency, i.e., an unforeseen and time sensitive event. The cash ratio can help measure an entity or individual’s hypothesized solvency in the face of unexpected scenarios, events, etc. As such, the cash ratio is defined below: Cash Ratio = Cash and Cash Equivalents/Current Liabilities The cash ratio is not simply a doomsday tool but a highly practical measure when determining market value. In the financial services space, even large companies or profitable institutions can find themselves at liquidity risk due to unexpected events beyond their control. Why is Liquidity Important and Why it Matters to You? Liquidity is very important for not just financial markets but for individuals and investors. Liquid markets benefit all market participants and make it easier to buy and sell securities, stocks, collectables, etc. On an individual level, this is important for personal finance, as ordinary investors are able to better take advantage of trading opportunities. Additionally, high liquidity promotes financial health in companies in the same way it does for individuals. Conclusion – What Does Liquidity Mean? What is liquidity? This metric is a commonly used as a measure in the investing, banking, or financial services space. Liquidity determines how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? – cash, stocks, real estate. Of all assets, cash or money is the most liquid, meaning it is the easiest to utilize. All other liquid assets must be able to be quickly and efficiently converted into cash. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. Conversely, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Frequently Asked Questions About Liquidity Is Liquidity Good or Bad? The term liquidity refers to a measure and is neither good nor bad but is instead a metric of how convertible an asset is to cash. However, high liquidity is associated with lower risk, while a liquid stock is more likely to keep its value when being traded.Is a Home a Liquid Asset? A home or properly is not considered to be a liquid asset. Selling any property can incur additional costs and take a long amount of time. Additionally, there is often a price disparity from the time of purchase, meaning a seller may not even get its original market value back at the time of the sale. Why Are Stocks Liquid? Stocks are some of the most liquid assets in financial markets because these assets can be converted to cash in a short period of time in the event of any financial emergency. Is Tesla a Liquid Stock? Tesla is a liquid stock and while hugely volatile, is an integral part of the NASDAQ and is a globally recognized company. Additionally, the company is a popular single-stock CFD offering at many brokerages, with very high volumes. Is a Pension a Liquid Asset? Certain pensions are liquid assets once you have reached a retirement age. Until you are eligible to withdraw or collect a pension, without early withdrawal penalty, it is not considered a liquid asset.
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash. The most liquid asset of all is cash itself. · In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent varying degrees of liquidity. This can be differentiated as market liquidity or accounting liquidity.· Liquidity refers to a tangible construct that can be measures. The most common ways to do so include a current ratio, quick ratio, and cash ratio. What is the Definition of Liquidity? Liquidity is a common definition used in investing, banking, or the financial services space. Its primary function is to ascertain how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? By definition, in terms of liquidity, cash is unequivocally seen as the most liquid asset in an economic sense. This is due to its widespread acceptance and ease of conversion into other assets, forms of cash, or currencies, etc. All other liquid assets must be able to be quickly and efficiently converted into cash, i.e., financial liquidity. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. By extension, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Liquidity Spectrum Liquid assets can be defined primarily as either cash on hand or simply an asset that can be easily or readily converted into usable cash. It is important to note that cash is not uniformly liquid for several reasons. The below examples encompass all types of assets and their corresponding level of liquidity. Examples of Liquid Assets or Securities A good example of this is the US dollar, which is recognized or accepted globally, and backed by the US government or Federal Reserve Bank. Other major forms of cash include Euros, or major currencies. This differs notably from the legal tender in many emerging countries or others for political or economic reasons. Cash aside, assets such as stocks or equities, bonds and other securities, money market assets, marketable securities, US treasuries or T-notes, exchange-traded funds (ETFs), a savings account, and mutual funds serve as the most liquid assets. These are generally assumed to be quick assets. Each of these assets can be converted into cash either instantaneously, or via any brokerage platform, exchange, etc., often in as little as minutes or seconds. As such, these assets are liquid. Examples of Illiquid Assets or Securities Conversely, illiquid assets still retain importance and value, though are much more difficult to convert into cash. Common examples of this include land or real estate, intellectual property, or other forms of capital such as equipment or machinery. In the examples above, liquid assets are assumed to be convertible into cash without substantial fees or delays in time. Illiquid assets on the other hand often suffer from fees or additional conversion costs, processing times, ultimately creating a price disparity. The best example of an illiquid asset is a house. For many individuals this is the most valuable asset they will own in their entire lives. However, selling a house typically requires taxes, realtor fees, and other costs, in addition to time. Real estate or land also takes much longer to exchange into cash, relative to other assets. Types of Liquidity Overall, liquidity is a broad term that needs to be defined by two different measures: market liquidity and accounting liquidity. Both measures deal with different constructs or entities entirely, though are useful metrics with regards to individuals or financial markets. Market Liquidity Market liquidity is a broader term that is used by a market maker to measure the ease of which assets can be bought and sold at transparent prices, namely across exchanges, stock markets, or other financial sectors. This can include among others, a real estate or property market, market for fine arts and collectable, and other goods. Market Liquidity Example As mentioned above, certain financial markets are much more liquid than others. The degree to which stocks from large companies or foreign currencies can be exchanged is much easier than finding a readily available market for antiques, collectables, or other capital, regardless of utility. Overall, a stock market, financial brokerage, or exchange is considered to have the high market liquidity. This is because the difference between both the bid and ask prices between parties is very low. The lower the spread between these two prices, the more liquid a given market is. Additionally, low liquidity refers to a higher spread between two prices. Why Liquidity Varies and What Does Liquidity Mean in Stocks? Every asset has a variable level of liquidity meaning this can change depending on what is being analyzed. One can define liquidity in stocks or stock markets in the same way as in foreign exchange markets, brokers, commodities exchanges, and crypto exchanges. Additionally, how large the market is will also dictate liquidity. The foreign exchange market for example is currently the largest by trading volume with high liquidity due to cash flows. This is hardly surprising given that forms of cash or currencies are being exchanged. What is Liquidity in Stocks? A stock’s liquidity refers to how rapidly shares of a stock can be bought or sold without largely impacting a stock price. By definition, liquidity in stocks varies for a number of reasons. Stocks with low liquidity may be difficult to sell and may cause you to take a bigger loss if you cannot sell the shares when you want to. In finance, the most liquid assets are always the most popular. By extension, if a spread between buyers and sellers increases, the market is considered to be less liquid. A good example of this is the real estate or property market. While highly valuable, there are large disparities between the purchase price and selling price of property, as well as the time associated in making these transactions, and additional fees incurred by other parties. Liquidity providers play a key role in this regard. Accounting Liquidity Unlike market liquidity, accounting liquidity measures something different entirely. Accounting liquidity is a measure by which either an individual or entity can meet their respective current financial obligations with the current liquid assets available to them. This includes paying off debts, overhead, or any other fixed costs associated with a business. Accounting liquidity is a functional comparison between one’s current liquid assets and their current liabilities. In the United States and other countries, companies and individuals have to reconcile accounting on a yearly basis. Accounting liquidity is an excellent measure that captures financial obligations due in a year. Accounting Liquidity Example Accounting liquidity itself can be differentiated by several ratios, controlling for how liquid assets are. These measures are useful tools for not just the individual or company in focus but for others that are trying to ascertain current financial health.As an example, accounting liquidity can measure any company’s current financial assets and compare them to its financial obligations. If there is a large disparity between these figures, or much more assets than obligations, a company can be considered to have a strong depth of liquidity.How to Calculate Liquidity Liquidity is of importance to investors, financial market participants, analysts, or even for an investment strategy. Calculating liquidity is a measure of firm or individual’s ability to utilize or harness current liquid assets to current cover short-term debt. This can be achieved using a total of four formulas: the current ratio, quick ratio, acid-test variation, and cash ratio. Current Ratio The current ratio is the easiest measure due to its lack of complexity. Quite simply, the current ratio measures a firm or individual’s current assets or those than can be sold within a calendar year, weighed against all current liabilities. Current Ratio = Current Assets/Current Liabilities If the current ratio’s value is greater than 1, then the entity in question can be assumed to reconcile its financial obligations using its current liquid assets. Highly liquid assets will correspond to higher numbers in this regard. Conversely, any number less than 1 indicates that current liquid assets are not enough to cover short-term obligations. Quick Ratio A quick ratio is a slightly more complex way of measuring accounting liquidity via a balance sheet. Unlike the current ratio, the quick ratio excludes current assets that are not as liquid as cash, cash equivalents, or other shorter-term investments. The quick ratio can be defined below by the following: Quick Ratio = (Cash or Cash Equivalents + Shorter-Term Investments + Accounts Receivable)/Current Liabilities Acid-Test Ratio The acid-test ratio is a variation of the quick ratio. The acid-test ratio seeks to deduct inventory from current assets, serving as a traditionally broader measure that is more forgiving to individuals or entities. Acid-Test Ratio = (Current Assets – Inventories – Prepaid Costs)/Current Liabilities Cash Ratio Finally, the cash ratio further isolates current assets, looking to measure only liquid assets that are designated as cash or cash equivalents. In this sense, the cash ratio is the most precise of the other liquidity ratios, excluding accounts receivable, inventories, or other assets. A more precise measure has its uses, namely regarding assessing financial strength in the face of an emergency, i.e., an unforeseen and time sensitive event. The cash ratio can help measure an entity or individual’s hypothesized solvency in the face of unexpected scenarios, events, etc. As such, the cash ratio is defined below: Cash Ratio = Cash and Cash Equivalents/Current Liabilities The cash ratio is not simply a doomsday tool but a highly practical measure when determining market value. In the financial services space, even large companies or profitable institutions can find themselves at liquidity risk due to unexpected events beyond their control. Why is Liquidity Important and Why it Matters to You? Liquidity is very important for not just financial markets but for individuals and investors. Liquid markets benefit all market participants and make it easier to buy and sell securities, stocks, collectables, etc. On an individual level, this is important for personal finance, as ordinary investors are able to better take advantage of trading opportunities. Additionally, high liquidity promotes financial health in companies in the same way it does for individuals. Conclusion – What Does Liquidity Mean? What is liquidity? This metric is a commonly used as a measure in the investing, banking, or financial services space. Liquidity determines how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? – cash, stocks, real estate. Of all assets, cash or money is the most liquid, meaning it is the easiest to utilize. All other liquid assets must be able to be quickly and efficiently converted into cash. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. Conversely, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Frequently Asked Questions About Liquidity Is Liquidity Good or Bad? The term liquidity refers to a measure and is neither good nor bad but is instead a metric of how convertible an asset is to cash. However, high liquidity is associated with lower risk, while a liquid stock is more likely to keep its value when being traded.Is a Home a Liquid Asset? A home or properly is not considered to be a liquid asset. Selling any property can incur additional costs and take a long amount of time. Additionally, there is often a price disparity from the time of purchase, meaning a seller may not even get its original market value back at the time of the sale. Why Are Stocks Liquid? Stocks are some of the most liquid assets in financial markets because these assets can be converted to cash in a short period of time in the event of any financial emergency. Is Tesla a Liquid Stock? Tesla is a liquid stock and while hugely volatile, is an integral part of the NASDAQ and is a globally recognized company. Additionally, the company is a popular single-stock CFD offering at many brokerages, with very high volumes. Is a Pension a Liquid Asset? Certain pensions are liquid assets once you have reached a retirement age. Until you are eligible to withdraw or collect a pension, without early withdrawal penalty, it is not considered a liquid asset. Read this Term on Polygon. 5 pools are available.
GK8, a digital asset custody platform announced a new integration with Polygon, which may only contribute to the network.
Optimism network, which was only launched recently has gained the interest of large DeFi projects. Iron Bank, Homora and Yearn Finance joined optimism, which contributed to its recent gains.
source: defillama
The total value locked (TVL) is over $1B in Optimism at the time of this writing. Almost half the locked tokens are from Aave, ETH-based borrowing and lending protocol.
Dark Ghosty, integrations lead of Yearn Finance explained why Optimism was chosen: “We’re excited about Optimism for the users who were priced out of yVaults on Ethereum.
“With the additional liquidity flexibility that Iron Bank provides as a protocol-to-protocol lending partner, people can get the best risk-adjusted yield in DeFi without having to worry about high gas costs on a super-fast chain.”
Arbitrum recently launched Arbitrum Nova scaling solution. Offchain Labs, the company behind Arbitrum launched a new chain, Arbitrum Nova. Based on AnyTrust technology, Arbitrum Nova is designed for social and gaming apps while Arbitrum One will be for NFTs and decentralized finance projects.
Reddit’s community points system makes use of Arbitrum Nova. FTX Pay will be integrated into Reddit’s systems.
Vitalik Buterin, the Founder of Ethereum said layer 2 rollups will increase crypto payments adoption. At the Korea Blockchain Week (KBW) Buterin stated the following:
“So today with roll ups, transaction fees are generally somewhere between $0.25, sometimes $0.10, and in the future with roll ups with all of the improvements to efficiency that I talked about.
“The transaction costs could go down to $0.05, or even maybe as low as $0.02. So much cheaper, much more affordable, and a complete game changer.”
As ether layer 2 networks continue to evolve, the upcoming merge is unlikely to mark the end of scaling solutions.
How will Ethereum Trade Post-Merge?
Prior to risk events, traders often downsize their net exposure to the given instrument. A recent example can be seen from the US indices futures such as the Dow Jones, which has corrected lower ahead of the Minutes.
As the Ethereum beacon merge may be considered as a significant event, investors may reduce their ETH holdings as a precaution.
Enigma, a digital assets advisory is using stETH (Lido staked ETH) to forecast the success of the merge. At the time of this writing 1 stETH is worth 0.973 ETH.
source: tradingview
Enigma suggests that it implies a 93.5% – 93.75% chance for a successful merge.
Using Enigma’s model, if stETH gap from ETH increases, it may suggest the market is less confident the merge will be smooth. It may reflect in ETH holders further reducing their exposure as we near the merge, most likely several days prior to the scheduled date in September.
Investors may monitor stETH/ETH to assess the market sentiment on the merge. Another event that may take place and have a significant impact on Etheruem are ETH miners, which may lead to a hard fork.
ETH Miners Hard Fork
When Ethereum shifts from PoW to PoS, ETH miners will lose their source of income. The network will relay on validators rather than miners.
Ethereum Classic may appear as an appropriate alternative, however, it cannot contain all of ETH miners. Some miners have already shifted to Ethereum Classic as evident from the uptick in the hash rate.
source: 2miners
One of the possible scenarios is a hard fork (the chain will be referred to as EthereumPOW), which may have a negative effect on ETH price. The miners will have their own ETH network based on proof of work.
Justin Sun, the Founder of Tron said he will support the ecosystem in the hard fork is successful:
“We currently have more than 1 million ETH,” Sun said in a Thursday tweet. “If Ethereum hard fork succeeds, we will donate some forked ETHW to ETHW community and developers to build Ethereum ecosystem.”
Poloniex crypto exchange also affirmed its support for the fork:
“Poloniex will give full support to ETH’s upgrade and its potential hard fork. If successful, the Merge could create two parallel blockchains after the upgrade. All Ethereum (ETH) holders on Poloniex will receive the forked assets at a 1:1 ratio when the upgrade is completed.”
More crypto exchanges see the opportunity the hard fork may bring. MEXC crypto exchange is offering 2 tokens, ETHS and ETHW.
ETHS represents the ether chain that is based on PoS while ETHW is the forked chain (should it indeed take place at the merge) that will be based on PoW.
ETHS/USDT and ETHW/USDT are available for trading at MEXC.
Bitrue, a cryptocurrency exchange in Singapore followed the steps of MEXC and announced ETHS and ETHW will be available for trading at the platform. In an event ETHW will never materialize, ETHW will automatically convert to ETHS.
As we near September more cryptocurrency platforms may add both ETHW and ETHS to their trading platforms.
Forking ETH may initially result in a price drop in Ethereum 2.0. At the time of this writing it is challenging to assess whether the hard fork will in fact take place.
Investors Are Forgetting the Federal Reserve
The merge date is expected to be around 15 September, a week (approx.) before the Fed monetary policy meeting. A large chunk of ETH recovery was due to the US CPI, which came in below market expectations, largely due to crude oil’s recent weakness.
source: tradingeconomics
A nuclear deal with Iran will contribute to further weakness in crude oil, which may in turn reflect in lower inflation figures. The Biden administration is interested in a lower crude oil price prior to the US midterm elections on 8 November 2022.
Despite inflation figures cooling down, the inflation is still relatively high. The CPI as well as Core CPI figures will continue playing a significant role in ETH sentiment.
The outcome of the Fed monetary policy may have a greater impact on Ethereum as well as Bitcoin than the merge itself. The FOMC Minutes that will be released on Wednesday (in several hours) may hint on how aggressive the Fed will be on future rate hikes.
Some volatility is expected in Ethereum and Bitcoin upon the release of the FOMC minutes.
The next US CPI figures are due on 13 September, days before the merge is expected to take place. These figures should be the center of attention to every crypto investor.
A week after the Fed will present its monetary policy.
source: tradingview, ETHUSD
The breakout below the neckline (in blue) lead to further weakness. The 21MA (orange) is acting as the nearest resistance based on ETHUSD weekly chart.
A weekly close above the 21MA may allow the price to extend its gains, targeting the breached neckline (blue), which is the major hurdle Ethereum must overcome (around $3,000 at the time of this writing).
Some support is offered at $1,680, which if tested may contain further weakness. At the time of this writing Ethereum is weakening in tandem with the US indices ahead of the FOMC Minutes.
As we near the Ethereum merge, what scenarios will affect ETH sentiment, bullish or bearish and what can be used to determine the success of the merge?
The Goerli testnet merge (the last testnet) was successful, which paved the way for further gains in ETHUSD. Ethereum is due to transition from proof of work to proof of stake in mid-September, which has been the catalyst for the recent market sentiment.
Exploring ETH options open interest is providing a glance into investors’ expectations:
source: coinglass
Ethereum options open interest rose significantly, which is reflecting the renewed interest in the cryptocurrency. The top strike prices for the call options at the time of this writing are $3,000 (ETH 407,730), $3,500 (ETH 323,570) and $4,000 (ETH 387,730).
The debate among crypto analysts is whether Ethereum recent gains are as a result of buy the rumour, sell the news or the merge will indeed be the starting point of a larger bullish retracement.
Ethereum merge predictions are mixed, it is important to understand what is affecting the price and what events are seen as bearish and bullish.
Before diving into the possible scenarios; it is important to be aware that exchanges may pause ether deposits and withdrawals during the merge, which will take place in September 2022.
Coinbase Will Pause ETH Deposits and Withdrawals
Compound Labs Co-Founder Robert Leshner described the merge as swapping a spaceship’s engine in mid-flight. As the merge takes place increased activities in bots is likely to take place.
Coinbase is concerned the becon merge may not be as smooth as expected, announcing that is will pause ETH and ERC-20 token deposits and withdrawals during the merge.
‘During the Merge, Coinbase will briefly pause new Ethereum (ETH) and ERC-20 token deposits and withdrawals as a precautionary measure.
‘Although the Merge is expected to be seamless from a user perspective, this downtime allows us to ensure that the transition has been successfully reflected by our systems.
‘We do not expect any other networks or currencies to be impacted and expect no impact to trading for ETH and ERC-20 tokens across our centralized trading products.’
source: coinbase
Some are expecting other crypto exchanges to follow suit. When Luna 2.0 was released, Terra Classic validators were reporting the price of Luna 2.0 by error.
Terra classic was trading at $0.0013 while Luna 2.0 was trading at $9.83. Validators run an old version of the oracle software, which lead to the exploit.
Pools were drained as a result; millions of dollars were earned by bad actors that exploited the ecosystem.
Layer 2 Scaling Solutions May Prevail
Ethereum layer 2 solutions such as Polygon (Matic), Optimism (OP) and Arbitrum (Arbitrum has no token) may continue prevailing despite Ethereum transition to proof of stake.
Over the past year ETH gained $9.9 billion in revenue compared to a total of $78 million on the above layer 2 mainnets. The merge may cause some volatility as at the time of this writing ETH layer 2 Web 3.0 solutions are highly correlated to ether price.
The parent company of Mercedes Benz (Daimler Group) announced it will launch a data sharing platform on Polygon.
The data sharing platform is called Acentrik. It will allow users to trade data on the platform such as insurance details, scientific trials and more. Each data set will be presented by a non-fungible token (NFT)
Coca-Cola recently launched its NFTs on the Polygon network. Despite the upcoming merge businesses still opt for layer 2’s.
Lido Finance announced it has partnered with KyberSwap Elastic (automated market maker, supplies liquidity providers with deeper liquidity) to improve liquidity
Liquidity
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash. The most liquid asset of all is cash itself. · In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent varying degrees of liquidity. This can be differentiated as market liquidity or accounting liquidity.· Liquidity refers to a tangible construct that can be measures. The most common ways to do so include a current ratio, quick ratio, and cash ratio. What is the Definition of Liquidity? Liquidity is a common definition used in investing, banking, or the financial services space. Its primary function is to ascertain how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? By definition, in terms of liquidity, cash is unequivocally seen as the most liquid asset in an economic sense. This is due to its widespread acceptance and ease of conversion into other assets, forms of cash, or currencies, etc. All other liquid assets must be able to be quickly and efficiently converted into cash, i.e., financial liquidity. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. By extension, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Liquidity Spectrum Liquid assets can be defined primarily as either cash on hand or simply an asset that can be easily or readily converted into usable cash. It is important to note that cash is not uniformly liquid for several reasons. The below examples encompass all types of assets and their corresponding level of liquidity. Examples of Liquid Assets or Securities A good example of this is the US dollar, which is recognized or accepted globally, and backed by the US government or Federal Reserve Bank. Other major forms of cash include Euros, or major currencies. This differs notably from the legal tender in many emerging countries or others for political or economic reasons. Cash aside, assets such as stocks or equities, bonds and other securities, money market assets, marketable securities, US treasuries or T-notes, exchange-traded funds (ETFs), a savings account, and mutual funds serve as the most liquid assets. These are generally assumed to be quick assets. Each of these assets can be converted into cash either instantaneously, or via any brokerage platform, exchange, etc., often in as little as minutes or seconds. As such, these assets are liquid. Examples of Illiquid Assets or Securities Conversely, illiquid assets still retain importance and value, though are much more difficult to convert into cash. Common examples of this include land or real estate, intellectual property, or other forms of capital such as equipment or machinery. In the examples above, liquid assets are assumed to be convertible into cash without substantial fees or delays in time. Illiquid assets on the other hand often suffer from fees or additional conversion costs, processing times, ultimately creating a price disparity. The best example of an illiquid asset is a house. For many individuals this is the most valuable asset they will own in their entire lives. However, selling a house typically requires taxes, realtor fees, and other costs, in addition to time. Real estate or land also takes much longer to exchange into cash, relative to other assets. Types of Liquidity Overall, liquidity is a broad term that needs to be defined by two different measures: market liquidity and accounting liquidity. Both measures deal with different constructs or entities entirely, though are useful metrics with regards to individuals or financial markets. Market Liquidity Market liquidity is a broader term that is used by a market maker to measure the ease of which assets can be bought and sold at transparent prices, namely across exchanges, stock markets, or other financial sectors. This can include among others, a real estate or property market, market for fine arts and collectable, and other goods. Market Liquidity Example As mentioned above, certain financial markets are much more liquid than others. The degree to which stocks from large companies or foreign currencies can be exchanged is much easier than finding a readily available market for antiques, collectables, or other capital, regardless of utility. Overall, a stock market, financial brokerage, or exchange is considered to have the high market liquidity. This is because the difference between both the bid and ask prices between parties is very low. The lower the spread between these two prices, the more liquid a given market is. Additionally, low liquidity refers to a higher spread between two prices. Why Liquidity Varies and What Does Liquidity Mean in Stocks? Every asset has a variable level of liquidity meaning this can change depending on what is being analyzed. One can define liquidity in stocks or stock markets in the same way as in foreign exchange markets, brokers, commodities exchanges, and crypto exchanges. Additionally, how large the market is will also dictate liquidity. The foreign exchange market for example is currently the largest by trading volume with high liquidity due to cash flows. This is hardly surprising given that forms of cash or currencies are being exchanged. What is Liquidity in Stocks? A stock’s liquidity refers to how rapidly shares of a stock can be bought or sold without largely impacting a stock price. By definition, liquidity in stocks varies for a number of reasons. Stocks with low liquidity may be difficult to sell and may cause you to take a bigger loss if you cannot sell the shares when you want to. In finance, the most liquid assets are always the most popular. By extension, if a spread between buyers and sellers increases, the market is considered to be less liquid. A good example of this is the real estate or property market. While highly valuable, there are large disparities between the purchase price and selling price of property, as well as the time associated in making these transactions, and additional fees incurred by other parties. Liquidity providers play a key role in this regard. Accounting Liquidity Unlike market liquidity, accounting liquidity measures something different entirely. Accounting liquidity is a measure by which either an individual or entity can meet their respective current financial obligations with the current liquid assets available to them. This includes paying off debts, overhead, or any other fixed costs associated with a business. Accounting liquidity is a functional comparison between one’s current liquid assets and their current liabilities. In the United States and other countries, companies and individuals have to reconcile accounting on a yearly basis. Accounting liquidity is an excellent measure that captures financial obligations due in a year. Accounting Liquidity Example Accounting liquidity itself can be differentiated by several ratios, controlling for how liquid assets are. These measures are useful tools for not just the individual or company in focus but for others that are trying to ascertain current financial health.As an example, accounting liquidity can measure any company’s current financial assets and compare them to its financial obligations. If there is a large disparity between these figures, or much more assets than obligations, a company can be considered to have a strong depth of liquidity.How to Calculate Liquidity Liquidity is of importance to investors, financial market participants, analysts, or even for an investment strategy. Calculating liquidity is a measure of firm or individual’s ability to utilize or harness current liquid assets to current cover short-term debt. This can be achieved using a total of four formulas: the current ratio, quick ratio, acid-test variation, and cash ratio. Current Ratio The current ratio is the easiest measure due to its lack of complexity. Quite simply, the current ratio measures a firm or individual’s current assets or those than can be sold within a calendar year, weighed against all current liabilities. Current Ratio = Current Assets/Current Liabilities If the current ratio’s value is greater than 1, then the entity in question can be assumed to reconcile its financial obligations using its current liquid assets. Highly liquid assets will correspond to higher numbers in this regard. Conversely, any number less than 1 indicates that current liquid assets are not enough to cover short-term obligations. Quick Ratio A quick ratio is a slightly more complex way of measuring accounting liquidity via a balance sheet. Unlike the current ratio, the quick ratio excludes current assets that are not as liquid as cash, cash equivalents, or other shorter-term investments. The quick ratio can be defined below by the following: Quick Ratio = (Cash or Cash Equivalents + Shorter-Term Investments + Accounts Receivable)/Current Liabilities Acid-Test Ratio The acid-test ratio is a variation of the quick ratio. The acid-test ratio seeks to deduct inventory from current assets, serving as a traditionally broader measure that is more forgiving to individuals or entities. Acid-Test Ratio = (Current Assets – Inventories – Prepaid Costs)/Current Liabilities Cash Ratio Finally, the cash ratio further isolates current assets, looking to measure only liquid assets that are designated as cash or cash equivalents. In this sense, the cash ratio is the most precise of the other liquidity ratios, excluding accounts receivable, inventories, or other assets. A more precise measure has its uses, namely regarding assessing financial strength in the face of an emergency, i.e., an unforeseen and time sensitive event. The cash ratio can help measure an entity or individual’s hypothesized solvency in the face of unexpected scenarios, events, etc. As such, the cash ratio is defined below: Cash Ratio = Cash and Cash Equivalents/Current Liabilities The cash ratio is not simply a doomsday tool but a highly practical measure when determining market value. In the financial services space, even large companies or profitable institutions can find themselves at liquidity risk due to unexpected events beyond their control. Why is Liquidity Important and Why it Matters to You? Liquidity is very important for not just financial markets but for individuals and investors. Liquid markets benefit all market participants and make it easier to buy and sell securities, stocks, collectables, etc. On an individual level, this is important for personal finance, as ordinary investors are able to better take advantage of trading opportunities. Additionally, high liquidity promotes financial health in companies in the same way it does for individuals. Conclusion – What Does Liquidity Mean? What is liquidity? This metric is a commonly used as a measure in the investing, banking, or financial services space. Liquidity determines how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? – cash, stocks, real estate. Of all assets, cash or money is the most liquid, meaning it is the easiest to utilize. All other liquid assets must be able to be quickly and efficiently converted into cash. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. Conversely, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Frequently Asked Questions About Liquidity Is Liquidity Good or Bad? The term liquidity refers to a measure and is neither good nor bad but is instead a metric of how convertible an asset is to cash. However, high liquidity is associated with lower risk, while a liquid stock is more likely to keep its value when being traded.Is a Home a Liquid Asset? A home or properly is not considered to be a liquid asset. Selling any property can incur additional costs and take a long amount of time. Additionally, there is often a price disparity from the time of purchase, meaning a seller may not even get its original market value back at the time of the sale. Why Are Stocks Liquid? Stocks are some of the most liquid assets in financial markets because these assets can be converted to cash in a short period of time in the event of any financial emergency. Is Tesla a Liquid Stock? Tesla is a liquid stock and while hugely volatile, is an integral part of the NASDAQ and is a globally recognized company. Additionally, the company is a popular single-stock CFD offering at many brokerages, with very high volumes. Is a Pension a Liquid Asset? Certain pensions are liquid assets once you have reached a retirement age. Until you are eligible to withdraw or collect a pension, without early withdrawal penalty, it is not considered a liquid asset.
The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash. The most liquid asset of all is cash itself. · In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent varying degrees of liquidity. This can be differentiated as market liquidity or accounting liquidity.· Liquidity refers to a tangible construct that can be measures. The most common ways to do so include a current ratio, quick ratio, and cash ratio. What is the Definition of Liquidity? Liquidity is a common definition used in investing, banking, or the financial services space. Its primary function is to ascertain how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? By definition, in terms of liquidity, cash is unequivocally seen as the most liquid asset in an economic sense. This is due to its widespread acceptance and ease of conversion into other assets, forms of cash, or currencies, etc. All other liquid assets must be able to be quickly and efficiently converted into cash, i.e., financial liquidity. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. By extension, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Liquidity Spectrum Liquid assets can be defined primarily as either cash on hand or simply an asset that can be easily or readily converted into usable cash. It is important to note that cash is not uniformly liquid for several reasons. The below examples encompass all types of assets and their corresponding level of liquidity. Examples of Liquid Assets or Securities A good example of this is the US dollar, which is recognized or accepted globally, and backed by the US government or Federal Reserve Bank. Other major forms of cash include Euros, or major currencies. This differs notably from the legal tender in many emerging countries or others for political or economic reasons. Cash aside, assets such as stocks or equities, bonds and other securities, money market assets, marketable securities, US treasuries or T-notes, exchange-traded funds (ETFs), a savings account, and mutual funds serve as the most liquid assets. These are generally assumed to be quick assets. Each of these assets can be converted into cash either instantaneously, or via any brokerage platform, exchange, etc., often in as little as minutes or seconds. As such, these assets are liquid. Examples of Illiquid Assets or Securities Conversely, illiquid assets still retain importance and value, though are much more difficult to convert into cash. Common examples of this include land or real estate, intellectual property, or other forms of capital such as equipment or machinery. In the examples above, liquid assets are assumed to be convertible into cash without substantial fees or delays in time. Illiquid assets on the other hand often suffer from fees or additional conversion costs, processing times, ultimately creating a price disparity. The best example of an illiquid asset is a house. For many individuals this is the most valuable asset they will own in their entire lives. However, selling a house typically requires taxes, realtor fees, and other costs, in addition to time. Real estate or land also takes much longer to exchange into cash, relative to other assets. Types of Liquidity Overall, liquidity is a broad term that needs to be defined by two different measures: market liquidity and accounting liquidity. Both measures deal with different constructs or entities entirely, though are useful metrics with regards to individuals or financial markets. Market Liquidity Market liquidity is a broader term that is used by a market maker to measure the ease of which assets can be bought and sold at transparent prices, namely across exchanges, stock markets, or other financial sectors. This can include among others, a real estate or property market, market for fine arts and collectable, and other goods. Market Liquidity Example As mentioned above, certain financial markets are much more liquid than others. The degree to which stocks from large companies or foreign currencies can be exchanged is much easier than finding a readily available market for antiques, collectables, or other capital, regardless of utility. Overall, a stock market, financial brokerage, or exchange is considered to have the high market liquidity. This is because the difference between both the bid and ask prices between parties is very low. The lower the spread between these two prices, the more liquid a given market is. Additionally, low liquidity refers to a higher spread between two prices. Why Liquidity Varies and What Does Liquidity Mean in Stocks? Every asset has a variable level of liquidity meaning this can change depending on what is being analyzed. One can define liquidity in stocks or stock markets in the same way as in foreign exchange markets, brokers, commodities exchanges, and crypto exchanges. Additionally, how large the market is will also dictate liquidity. The foreign exchange market for example is currently the largest by trading volume with high liquidity due to cash flows. This is hardly surprising given that forms of cash or currencies are being exchanged. What is Liquidity in Stocks? A stock’s liquidity refers to how rapidly shares of a stock can be bought or sold without largely impacting a stock price. By definition, liquidity in stocks varies for a number of reasons. Stocks with low liquidity may be difficult to sell and may cause you to take a bigger loss if you cannot sell the shares when you want to. In finance, the most liquid assets are always the most popular. By extension, if a spread between buyers and sellers increases, the market is considered to be less liquid. A good example of this is the real estate or property market. While highly valuable, there are large disparities between the purchase price and selling price of property, as well as the time associated in making these transactions, and additional fees incurred by other parties. Liquidity providers play a key role in this regard. Accounting Liquidity Unlike market liquidity, accounting liquidity measures something different entirely. Accounting liquidity is a measure by which either an individual or entity can meet their respective current financial obligations with the current liquid assets available to them. This includes paying off debts, overhead, or any other fixed costs associated with a business. Accounting liquidity is a functional comparison between one’s current liquid assets and their current liabilities. In the United States and other countries, companies and individuals have to reconcile accounting on a yearly basis. Accounting liquidity is an excellent measure that captures financial obligations due in a year. Accounting Liquidity Example Accounting liquidity itself can be differentiated by several ratios, controlling for how liquid assets are. These measures are useful tools for not just the individual or company in focus but for others that are trying to ascertain current financial health.As an example, accounting liquidity can measure any company’s current financial assets and compare them to its financial obligations. If there is a large disparity between these figures, or much more assets than obligations, a company can be considered to have a strong depth of liquidity.How to Calculate Liquidity Liquidity is of importance to investors, financial market participants, analysts, or even for an investment strategy. Calculating liquidity is a measure of firm or individual’s ability to utilize or harness current liquid assets to current cover short-term debt. This can be achieved using a total of four formulas: the current ratio, quick ratio, acid-test variation, and cash ratio. Current Ratio The current ratio is the easiest measure due to its lack of complexity. Quite simply, the current ratio measures a firm or individual’s current assets or those than can be sold within a calendar year, weighed against all current liabilities. Current Ratio = Current Assets/Current Liabilities If the current ratio’s value is greater than 1, then the entity in question can be assumed to reconcile its financial obligations using its current liquid assets. Highly liquid assets will correspond to higher numbers in this regard. Conversely, any number less than 1 indicates that current liquid assets are not enough to cover short-term obligations. Quick Ratio A quick ratio is a slightly more complex way of measuring accounting liquidity via a balance sheet. Unlike the current ratio, the quick ratio excludes current assets that are not as liquid as cash, cash equivalents, or other shorter-term investments. The quick ratio can be defined below by the following: Quick Ratio = (Cash or Cash Equivalents + Shorter-Term Investments + Accounts Receivable)/Current Liabilities Acid-Test Ratio The acid-test ratio is a variation of the quick ratio. The acid-test ratio seeks to deduct inventory from current assets, serving as a traditionally broader measure that is more forgiving to individuals or entities. Acid-Test Ratio = (Current Assets – Inventories – Prepaid Costs)/Current Liabilities Cash Ratio Finally, the cash ratio further isolates current assets, looking to measure only liquid assets that are designated as cash or cash equivalents. In this sense, the cash ratio is the most precise of the other liquidity ratios, excluding accounts receivable, inventories, or other assets. A more precise measure has its uses, namely regarding assessing financial strength in the face of an emergency, i.e., an unforeseen and time sensitive event. The cash ratio can help measure an entity or individual’s hypothesized solvency in the face of unexpected scenarios, events, etc. As such, the cash ratio is defined below: Cash Ratio = Cash and Cash Equivalents/Current Liabilities The cash ratio is not simply a doomsday tool but a highly practical measure when determining market value. In the financial services space, even large companies or profitable institutions can find themselves at liquidity risk due to unexpected events beyond their control. Why is Liquidity Important and Why it Matters to You? Liquidity is very important for not just financial markets but for individuals and investors. Liquid markets benefit all market participants and make it easier to buy and sell securities, stocks, collectables, etc. On an individual level, this is important for personal finance, as ordinary investors are able to better take advantage of trading opportunities. Additionally, high liquidity promotes financial health in companies in the same way it does for individuals. Conclusion – What Does Liquidity Mean? What is liquidity? This metric is a commonly used as a measure in the investing, banking, or financial services space. Liquidity determines how quickly a given asset can be bought, sold, or exchanged without a disparity in market price. Which of the following assets is the most liquid? – cash, stocks, real estate. Of all assets, cash or money is the most liquid, meaning it is the easiest to utilize. All other liquid assets must be able to be quickly and efficiently converted into cash. This includes such things as stocks, commodities, or virtually any other construct that has an associated value. Conversely, illiquid or non-liquid assets are not able to be quickly converted into cash. These assets, also known as tangible assets, can include such things as rare art or collectables, real estate, etc. Frequently Asked Questions About Liquidity Is Liquidity Good or Bad? The term liquidity refers to a measure and is neither good nor bad but is instead a metric of how convertible an asset is to cash. However, high liquidity is associated with lower risk, while a liquid stock is more likely to keep its value when being traded.Is a Home a Liquid Asset? A home or properly is not considered to be a liquid asset. Selling any property can incur additional costs and take a long amount of time. Additionally, there is often a price disparity from the time of purchase, meaning a seller may not even get its original market value back at the time of the sale. Why Are Stocks Liquid? Stocks are some of the most liquid assets in financial markets because these assets can be converted to cash in a short period of time in the event of any financial emergency. Is Tesla a Liquid Stock? Tesla is a liquid stock and while hugely volatile, is an integral part of the NASDAQ and is a globally recognized company. Additionally, the company is a popular single-stock CFD offering at many brokerages, with very high volumes. Is a Pension a Liquid Asset? Certain pensions are liquid assets once you have reached a retirement age. Until you are eligible to withdraw or collect a pension, without early withdrawal penalty, it is not considered a liquid asset. Read this Term on Polygon. 5 pools are available.
GK8, a digital asset custody platform announced a new integration with Polygon, which may only contribute to the network.
Optimism network, which was only launched recently has gained the interest of large DeFi projects. Iron Bank, Homora and Yearn Finance joined optimism, which contributed to its recent gains.
source: defillama
The total value locked (TVL) is over $1B in Optimism at the time of this writing. Almost half the locked tokens are from Aave, ETH-based borrowing and lending protocol.
Dark Ghosty, integrations lead of Yearn Finance explained why Optimism was chosen: “We’re excited about Optimism for the users who were priced out of yVaults on Ethereum.
“With the additional liquidity flexibility that Iron Bank provides as a protocol-to-protocol lending partner, people can get the best risk-adjusted yield in DeFi without having to worry about high gas costs on a super-fast chain.”
Arbitrum recently launched Arbitrum Nova scaling solution. Offchain Labs, the company behind Arbitrum launched a new chain, Arbitrum Nova. Based on AnyTrust technology, Arbitrum Nova is designed for social and gaming apps while Arbitrum One will be for NFTs and decentralized finance projects.
Reddit’s community points system makes use of Arbitrum Nova. FTX Pay will be integrated into Reddit’s systems.
Vitalik Buterin, the Founder of Ethereum said layer 2 rollups will increase crypto payments adoption. At the Korea Blockchain Week (KBW) Buterin stated the following:
“So today with roll ups, transaction fees are generally somewhere between $0.25, sometimes $0.10, and in the future with roll ups with all of the improvements to efficiency that I talked about.
“The transaction costs could go down to $0.05, or even maybe as low as $0.02. So much cheaper, much more affordable, and a complete game changer.”
As ether layer 2 networks continue to evolve, the upcoming merge is unlikely to mark the end of scaling solutions.
How will Ethereum Trade Post-Merge?
Prior to risk events, traders often downsize their net exposure to the given instrument. A recent example can be seen from the US indices futures such as the Dow Jones, which has corrected lower ahead of the Minutes.
As the Ethereum beacon merge may be considered as a significant event, investors may reduce their ETH holdings as a precaution.
Enigma, a digital assets advisory is using stETH (Lido staked ETH) to forecast the success of the merge. At the time of this writing 1 stETH is worth 0.973 ETH.
source: tradingview
Enigma suggests that it implies a 93.5% – 93.75% chance for a successful merge.
Using Enigma’s model, if stETH gap from ETH increases, it may suggest the market is less confident the merge will be smooth. It may reflect in ETH holders further reducing their exposure as we near the merge, most likely several days prior to the scheduled date in September.
Investors may monitor stETH/ETH to assess the market sentiment on the merge. Another event that may take place and have a significant impact on Etheruem are ETH miners, which may lead to a hard fork.
ETH Miners Hard Fork
When Ethereum shifts from PoW to PoS, ETH miners will lose their source of income. The network will relay on validators rather than miners.
Ethereum Classic may appear as an appropriate alternative, however, it cannot contain all of ETH miners. Some miners have already shifted to Ethereum Classic as evident from the uptick in the hash rate.
source: 2miners
One of the possible scenarios is a hard fork (the chain will be referred to as EthereumPOW), which may have a negative effect on ETH price. The miners will have their own ETH network based on proof of work.
Justin Sun, the Founder of Tron said he will support the ecosystem in the hard fork is successful:
“We currently have more than 1 million ETH,” Sun said in a Thursday tweet. “If Ethereum hard fork succeeds, we will donate some forked ETHW to ETHW community and developers to build Ethereum ecosystem.”
Poloniex crypto exchange also affirmed its support for the fork:
“Poloniex will give full support to ETH’s upgrade and its potential hard fork. If successful, the Merge could create two parallel blockchains after the upgrade. All Ethereum (ETH) holders on Poloniex will receive the forked assets at a 1:1 ratio when the upgrade is completed.”
More crypto exchanges see the opportunity the hard fork may bring. MEXC crypto exchange is offering 2 tokens, ETHS and ETHW.
ETHS represents the ether chain that is based on PoS while ETHW is the forked chain (should it indeed take place at the merge) that will be based on PoW.
ETHS/USDT and ETHW/USDT are available for trading at MEXC.
Bitrue, a cryptocurrency exchange in Singapore followed the steps of MEXC and announced ETHS and ETHW will be available for trading at the platform. In an event ETHW will never materialize, ETHW will automatically convert to ETHS.
As we near September more cryptocurrency platforms may add both ETHW and ETHS to their trading platforms.
Forking ETH may initially result in a price drop in Ethereum 2.0. At the time of this writing it is challenging to assess whether the hard fork will in fact take place.
Investors Are Forgetting the Federal Reserve
The merge date is expected to be around 15 September, a week (approx.) before the Fed monetary policy meeting. A large chunk of ETH recovery was due to the US CPI, which came in below market expectations, largely due to crude oil’s recent weakness.
source: tradingeconomics
A nuclear deal with Iran will contribute to further weakness in crude oil, which may in turn reflect in lower inflation figures. The Biden administration is interested in a lower crude oil price prior to the US midterm elections on 8 November 2022.
Despite inflation figures cooling down, the inflation is still relatively high. The CPI as well as Core CPI figures will continue playing a significant role in ETH sentiment.
The outcome of the Fed monetary policy may have a greater impact on Ethereum as well as Bitcoin than the merge itself. The FOMC Minutes that will be released on Wednesday (in several hours) may hint on how aggressive the Fed will be on future rate hikes.
Some volatility is expected in Ethereum and Bitcoin upon the release of the FOMC minutes.
The next US CPI figures are due on 13 September, days before the merge is expected to take place. These figures should be the center of attention to every crypto investor.
A week after the Fed will present its monetary policy.
source: tradingview, ETHUSD
The breakout below the neckline (in blue) lead to further weakness. The 21MA (orange) is acting as the nearest resistance based on ETHUSD weekly chart.
A weekly close above the 21MA may allow the price to extend its gains, targeting the breached neckline (blue), which is the major hurdle Ethereum must overcome (around $3,000 at the time of this writing).
Some support is offered at $1,680, which if tested may contain further weakness. At the time of this writing Ethereum is weakening in tandem with the US indices ahead of the FOMC Minutes.
