Will the hopium surrounding ethereum mergers continue, or is it a bull trap?

Ethereum has outperformed the broader cryptocurrency market as the much-anticipated merger looms, but the bigger picture remains largely bearish.

Ethereum has rallied a whopping 48% over the past seven days, outpacing its big brother Bitcoin, which has gained just 19% over the same period. Ethereum is also up 66% from its market cycle bottom of $918 on June 19 to its current price of $1,549 as of this writing.

However, the current rally in Ethereum could be a bull trap due to the cloudy macroeconomic environment. A bull trap is a signal that a crypto asset’s downtrend has reversed and is heading upwards, when in fact it will continue downwards.

The main driver of the asset’s recent momentum has to do with the announcement that it is finally moving to proof-of-stake, with the merger scheduled for September 19.

The combined network energy consumption will be reduced by more than 99%. However, this will not necessarily reduce transaction fees significantly, as this will happen sometime next year when scaling is enabled through sharding.

On July 19, Coinbase explained in a report on the merger that the important next step, and final dress rehearsal, is the Goerli testnet merger scheduled for August 11.

Goerli is the most tried and tested Ethereum environment with the most user activity and the closest simulated environment to the real thing.

While this major escalation is the fundamental driver of the current Ethereum market sentiment, the asset is still trading 68% below its November 2021 all-time high.

There are also concerns that a large amount of ETH may flood the market following the merger and the release of ETH from the staking smart contract.

However, Eliézer Ndinga, director of research at 21Shares, told Cointelegraph that this is unlikely to happen:

“Ethereum can only be withdrawn 6-12 months after the merged Shanghai upgrade. Each withdrawal will be limited to 6 verifiers at intervals (about 6 minutes) to avoid bank runs and ensure network security.”

A survey conducted by Finder prior to the recent rally revealed that there is still a lot of negative sentiment surrounding the price of Ethereum in the short term.

The survey team of 54 industry experts believes that by the end of 2022, the value of ETH will reach $1,711, climb to $5,739 by 2025, and then reach $14,412 in 2030. However, they also believe that ETH will drop to $675 before the end of the year.

There are several macroeconomic factors that could have contributed to this pullback, Finder said. The Fed is expected to raise interest rates by another 75 basis points at its July 26-27 meeting, which is generally bearish for the crypto market. If Bitcoin falls, Ethereum will surely follow.

In addition, the U.S. Bureau of Economic Analysis (BEA) will release its second-quarter GDP growth estimate on July 28. It is expected that two consecutive quarters of negative GDP growth will mean that the United States is in a technical recession, which is also very unfavorable for risky assets such as Ethereum.