4 Altcoins That Are Attractive Buys Into Ethereum’s Merge: Fundstrat

• Fundstrat exec Sean Farrell says these 4 altcoins may be good picks into the Merge.
• The Merge will transition Ethereum’s network from a proof of work to proof of stake model.
• In a recent note to clients, the exec said investors should consider buying the dip.

As Ethereum’s transition from proof of work to proof of stake enters its final stages, new investment opportunities may arise. 

Crypto markets experienced a steep downtrend in the first half of the year, with roughly two-thirds of the industry’s market value slashed. The nascent space fell from $3 trillion to roughly $1 trillion since its all-time high in November, according to data from Messari on Wednesday. In recent weeks, token prices across the board have experienced an uptrend, however, with ethereum up 55.9% on the month. 

In a market that is no stranger to volatility, however, investors are looking for signals of bullishness. According to the Ethereum Foundation, the Merge, which is slated tentatively for mid-September, will make the smart-contract network around 99% more energy efficient. Addressing common complaints associated with the blockchain could bring an influx of institutional capital and further mainstream adoption. 

Sean Farrell, the vice president of digital-asset strategy at Fundstrat, said the “Merge momentum intensifies,” potentially leaving investors eager to capture market share.

“This weekend marks the beginning of the final testnet Merge the last critical dress rehearsal that will determine whether the Mainnet Merge goes forward as scheduled or must be delayed again,” an August 5 note reads. “Should the final testnet Merge be completed without any significant issues, we are all systems go for the mid-September transition from PoW to PoS.”

Allocating to ‘Merge-adjacent’ tokens

Farrell says investors may want to consider allocating to four “Merge-adjacent” coins, according to the report, citing Polygon, Rocket Pool, Optimism, and Lido. 

Lido, whose DAO-governance token is $LDO, allows investors to earn passive income via staking without having to sell their coins. Staking is the process of validating transactions on blockchains to make them more secure and allows contributors to earn financial rewards. Besides Ethereum, Lido is also compatible with Polkadot, Solana, Polygon, and Kusama.

Rocket Pool, whose protocol token is $RPL, is the second-largest staking provider behind Lido. The decentralized Ethereum staking pool offers a 4.03% average annual-percentage rate for ETH2 staking, according to its website. Ethereum’s upgrade could create a more robust industry for staking, resulting in significant gains for both $RPL and $LDO. Both are ERC-20 tokens, which means they have a standard for issuing smart contracts on Ethereum’s blockchain.

“Optimism could benefit from the Merge due to Ethereum’s ‘Rollup-Centric Roadmap,’ which turns its main chain into a settlement and data availability layer and places scalability in the hands of layer-2 rollups via ‘danksharding,'” Cointelegraph previously reported.

Optimism is a layer-2, or L2, blockchain, meaning it’s built on top of ethereum’s mainnet. The L2, whose DAO-governance token is $OP, aims to address the network’s scalability issues by handling some of Ethereum’s transaction verfications off-chain. The token is up 276.9% in the past month according to data from Messari on Wednesday.

Polygon, which trades as $MATIC on exchanges, is another layer-2, or side chain. As layer-2s, both Polygon and Optimism lower gas fees and processes transactions much faster than the smart contract network they’re currently built on top of.  These 4 tokens are “high-beta plays,” according to Farrell, meaning the investments are prone to volatility, with the potential for higher returns into the Merge. 

Bitcoin, Ethereum, and Solana may be good picks into year-end, according to the note, which added that long- and medium-term investors could look at using token price dips as buying opportunities.

“We are long $BTC, $ETH, and $SOL into year-end and think that Merge-adjacent names, including $LDO, $RPL, $OP, and $MATIC, still present attractive opportunity for high-beta plays into the Merge,” the note said.

Farrell added: “The recent rally, coupled with prevailing market narratives and miner dynamics, suggests it might be wise to be overweight large cap altcoins in the medium term.”