CNBC Analyst Brian Kelly Warns Upcoming Ethereum Merge Is Riskier Than Traders Realize – Here’s Why

The CEO of digital currency investment firm BKCM is weighing in on the prospects for Ethereum (ETH) just weeks before the project initiates a major network upgrade.

In a new episode of Fast Money, CNBC contributor Brian Kelly first mentions how Ethereum investors might not be earning as big of a payday for profitable trades as expected due to ETH’s inflation mechanism.

“I think it’s probably more ‘sell the news,’ which is maybe not that intuitive because in crypto you generally want to buy the news. But everybody has been buying Ethereum because they’re going into this merge and now you’re going to get a so-called yield.

Just so you know, it’s not really a yield. You’re just getting your inflation rewards back, so it’s kind of offsetting the inflation in the currency. It’s not really a yield.”

Kelly expects investor excitement in advance of ETH’s mid-September switch from a proof-of-work (PoW) to proof-of-stake (PoS) consensus mechanism will inevitably lead to a sell-off, but warns that there is also the possibility of confusion or outright failure which could negatively affect Ethereum’s price as well as the project itself.

“There’s probably a higher potential for a sell-the-news event going into the merge.

You could also have a technical glitch. Not only [that], but there are a lot of questions about what the apps are going to do if Ethereum splits again.

You could have a chain fork and now not one, but two or three different Ethereums. Then what does your DApp (decentralized application) go on and play on?

I think that there’s more risk to the Ethereum merge than people are giving credit for.”

Looking at the economy more broadly, the analyst discusses cryptocurrencies’ correlation to the tech stock sector while highlighting the fundamental differences between Bitcoin (BTC) and Ethereum.

“It’s been very high. Bitcoin correlation with the Nasdaq is somewhere around 60%. Ethereum correlation with the Nasdaq is somewhere around 70% for the rolling last 30 days. Crypto is effectively acting like a 2x-levered, triple-Q ETF [exchange traded fund].

I think there’s some nuance here, in that Bitcoin itself is not a tech stock. It is definitively an alternative currency. It is digital gold. You need it when your country destroys its currency, like a lot of governments are doing today.

Ethereum, on the other hand, can be somewhat thought of as a tech stock because it is going to disrupt a lot of what tech stocks are doing today.

To the extent that it takes daily active users away from places like Twitter and Facebook and Google, I do think there is something to be said for Ethereum being a tech stock.”

At time of writing, ETH is priced at $1,578 and BTC is trading for $19,983.

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