David Angliss, an analyst with Australia’s leading cryptocurrency investment firm, Apollo Capital, shares the fund’s regular take on what’s happening in the fast-changing and volatile cryptocurrency space.

Own any Ethereum (ETH)? If so, you’ll probably know a bit about the protocol’s much-hyped Merge, from Proof-of-Work (PoW) to Proof-of-Stake (PoS). You might even be aware of the likely upcoming ETH PoW hard fork. In a chat last week, Apollo’s David Angliss helped us see some potential opportunity in it all and how best to prepare.

You can skip ahead to that part if you’re already familiar with the background around the fork. But if not…

 

Some background

While the overwhelming majority of exchanges and Ethereum-based protocols (e.g Chainlink, Aave, Synthetix and so on and on), are supporting the Merge, there is still a strong enough ETH-mining (PoW) community to contest the transition with the creation of their own “hard forked” chain. And that essentially means they’re sticking with the current PoW version of Ethereum.

This… let’s call it a faction, is vocally led by a prominent miner called Chandler Guo. And the main question is, obvs, why are they doing this?

“Essentially, it’s to recoup their mining-hardware investments,” says Angliss. “And that’s because it’s not so simple for them to just pack up shop and go mine another chain.”

Depending on timezones, core developers have now set the Merge date for a block time that will occur roughly between September 15 and 16, and the ETH PoW fork will be set by Guo and that community to land sometime around or just before the Merge time, according to Angliss.

Now here’s the juicy part, which we’ll get into a bit more in the “Opportunity overview” section further below…

As the Apollo analyst explains it, this blockchain fork will be a “system state” hard fork. And what that means is, all ERC20 tokens transitioning to the PoS chain, as well as ETH, will also have duplicates on the forked PoW chain.

(There is, by the way, already a derivative version of the PoW ETH, using the ticker ETHW, and it has support from a handful of exchanges at this stage.)

We’ll let that sink in after we go into a bit more context…

 

This isn’t the first Ethereum fork…

… And it’s obviously not the first big fork of a major blockchain, either.

“If you were around for the Bitcoin Cash and Bitcoin Gold forks, which have the same 21 billion-size supply as Bitcoin, then you know these were amongst the first airdrops in crypto,” says Angliss. 

“Likewise, Ethereum has had a major fork in its past. In 2016, after the infamous Ethereum DAO hack, the Ethereum Foundation chose to wind back the chain to continue on with a chain essentially without all the hacked funds in the wallet of the hacker.

“Although most backed this move, there was some division and preference for the original chain, which resulted in Ethereum Classic (ETC).”

 

Opportunity overview

Back to the duplicated tokens… This is where some opportunity lies – not just for front-running, bot-controlling whales, but potentially also for Joe Average crypto investor, too.

“Everything you had before the chain split will now be in the new PoS chain, and in the existing PoW chain,” explains Angliss. 

“And this includes NFTs and assets in wallets, any asset liquidity you’re providing through Uniswap etc, as well as your lending and borrowing (eg. Aave, Compound) positions.

Right. So all your Ethereum-based NFTs? Did we hear that correctly?

“Yep. If you have a Bored Ape, for example [Ed: er, nope] then you’ll actually get a PoW copy of that NFT as well as the PoS version.”

Note… these asset duplicates definitely won’t have the same price as the true, PoS-chain versions, but some could at least have a fraction of value – at least initially.

Just to give you an idea of that, the upcoming forked ETHW asset currently exists as a derivative version on the Poloniex, MEXC, and BitMex exchanges, to name a few. At the moment it’s trading for about US$67 compared with ETH’s current US$1.9k+ value.

So, we’re talking roughly five per cent at this point, although Angliss tells us he thinks the PoW-chain ETHW could easily hit 10 per cent of ETH’s value within the first hour.

“That’s possible,” he says. “Although, really, something like two per cent might be more realistic.”

 

What’s likely to happen? ETH PoW asset sell-off mayhem?

“Yep,” says Angliss. “When the fork happens, several things will wreak havoc, especially in DeFi.

“There will be 20,000 CryptoPunks and 10,000 Bored Apes. Two lots of UNI, ETH, WBTC… and think of all the stablecoins, too. USDC, backed 1:1 with the US dollar, has a market cap of US$54 billion, so there will be 54 billion USDC on both chains.

“Only one of those will have USDC issuer Circle’s backing, though, and the other one will quickly trend towards zero. Can you imagine which one that’ll be?

“But, basically, what’ll occur is, users will most likely sell everything on the PoW chain (USDC, USDT, DeFi tokens, meme tokens, NFTs) for ETHW, which will be the only token with some speculative ‘value’. 

“And this will probably happen within the first block. Gas wars, MEV, bribes, you name it – in the first minutes of the fork, everyone will want ETHW.

“I said it might be only be a very small fraction of the true ETH value, but then again, I also wouldn’t be completely surprised to see it very briefly surpass ETH in the first hour.” 

So just to recap these predictions, the Apollo analyst bullet-pointed it as follows:

Everyone will most likely:

  • Dump everything they’ve got on the forked ETH PoW chain for ETHW.
  • They’ll send ETHW to one of the supporting CEXes (centralised exchanges, such as MEXC and Poloniex).
  • Then they’ll aim to trade it for other assets, such as ETH… as strategically, possibly as quickly, as they can. 

In other words, complete and utter mayhem. Most likely in the first hour or two!

 

How to prepare, plus tips and tricks

Here are some ideas passed to us from Angliss (inspired by the Twitter account Olimpio, above) on how to prepare for, and expertly play, all of this. Keeping in mind, of course, that none of this is financial advice.

  • “Be sure to withdraw any ETH you have on centralised exchanges to on-chain ETH-supported wallets.” [And that’s because it’s unlikely all, or any, major exchanges will be supporting ETHW.]
  • “Cancel any Opensea NFT bids you’ve got open as they will also be accepted on the PoW chain and your ETHW will be taken from you.
  • “Research how to connect to the PoW chain once the Merge happens (Metamask and other wallets will probably NOT automatically connect.)
  • “If you hold Lido staked ETH – stETH, what you could do is lend it on Aave and borrow ETH or other assets. Monitor its APY closely, it will skyrocket.
  • “Be very careful buying the stETH token, though, because it will be one of the fastest assets to dump. Don’t buy it for a hold at this point.
  • “Remove your liquidity from DeFi pools before the Merge. You are better off having ETH/USDC on the PoW chain than a PoW Uniswap position of ETH/USDC.
  • “Consider taking an ETH Loan (using Aave or Compound) to maximise your ETHW PoW token.
  • “And remember, it’ll be easier to dump ETHW in a centralised exchange than, say your PoW version of USDC in a decentralised exchange, with all the chaos.”

 

Final thoughts on the Ethereum PoW fork

While all this forking madness does represent a chance for the prepared to reap some benefit from swift PoW-asset dumpage, Angliss does however, note that the average crypto punter will be “playing chequers compared with chess”, referring to strategic bigger players, whales.

“My overall take on the fork, though, is similar to that of [Twitter accounts] Olimpio and Hasu, in that I support PoS and decentralisation,” he says. “Miners may have ulterior motives for the ETHW to succeed initially as well as the exchanges supporting all the new trading pairs with ETHW. I will be very cautious of the narratives that might come from the ETHW camp.

“All of this brings attention to what is essentially an unimportant event. The most important thing is Ethereum’s Merge to Proof-of-Stake.” 

 

At the time of writing, the author of this piece holds several cryptocurrencies, including Bitcoin and Ethereum. None of the views expressed in this article should be taken as financial advice. 

 

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