Published in: Aktien Check

The Ethereum merge that has now been completed marks a turning point for the crypto industry. The switch from a proof-of-work system to proof-of-stake validation is not only a major step towards sustainability. “It also shows that cryptos are starting to split into two major blocks”, said Tim Faltis, Board Member at Fair Alpha. “For investors, this means that additional facts need to be considered to make investment decisions – and it offers opportunities for diversification.”

The fact that the Ethereum network switched to a proof-of-stake system creates a balance between energy-hungry crypto projects such as Bitcoin and pledge systems such as Ether & Co. now. “The sector is branching out, which is always a sign of coming of age for asset classes”, Faltis pointed out. “For investors, this means that topics such as sustainability are now much easier to incorporate into investment decisions, even with cryptos.”

Own blocks, however, may not only be formed on the basis of energy demand and therefore the question of the cryptos’ validation system. “The function fulfilled by projects in the cryptoverse, for example, is also an investment characteristic”, said Faltis. Blockchains such as Bitcoin are focusing on expanding their store of value function, as an actual parallel currency.

On the other hand, ever more projects are being established to implement digital business models. With its switch to the new system, for example, the Ethereum network has not only become less energy-hungry. “At the same time, changes were also introduced that ensure much higher blockchain performance”, Faltis added. The Ethereum community’s extended objective is to perform more transactions per second at lower transaction costs, which also leads to rethinking investment decisions. “Anyone buying Ether from now on is no longer just betting on the price development of the world’s second-largest cryptocurrency”, said Faltis. “Rather, investors are also betting on the success of a crypto infrastructure that enables numerous new business models.”

The change in strategy was well received by the markets. “Ether clearly outperformed Bitcoin in recent months”, Faltis highlighted. “The already huge network of developers on the Ethereum blockchain that is now expected to grow even further is creating a lot of substance.” This, in turn, holds potential for returns, as demand for Ether could tend to increase. “Such a broad use, however, also protects against heavy price losses”, said Faltis.

All in all, this should offer sufficient tailwind to the block of sustainability-focused proof-of-stake projects now led by Ethereum. “The entire crypto asset class is gaining increasing importance for many institutional investors”, Faltis explained. The switch ensures that a potential obstacle such as excessive energy consumption for validation has now been removed. According to Faltis, “this may be the final push for many institutional investors to invest in cryptos.” This particularly since the market has already become much more mature and therefore more investable. “Specifically Luxembourg securitisations have proven to be the optimal way to map this asset class via securities that can be held in custody.“

And as far as performance is concerned: “Even conventional investments have shown that the focus on sustainability can have positive effects on performance”, said Faltis. “This may now increasingly continue in the crypto space.”