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There’s optimism that the Ethereum merge may finally happen in September.

Key points

• Ethereum gained 12% in 24 hours, outperforming Bitcoin and other top cryptos.
• Another successful test took Ethereum one step closer to the long awaited Ethereum merge.
• The cryptocurrency market still faces major headwinds in the short term.

Ethereum (ETH) was up 12% in the past 24 hours this morning, according to CoinMarketCap. Ethereum gained a lot more than crypto grand-daddy Bitcoin (BTC), which was up 5%. The reason? Another successful test on the road toward Ethereum’s next big milestone, dubbed “the merge.” 

What’s behind Ethereum’s price gains?

The main driver behind Ethereum’s double-digit gains is positive news about the long awaited Ethereum merge. The merge is a switch from the energy intensive proof-of-work mining model to a more sustainable system known as proof-of-stake. Ethereum currently consumes as much energy as a small country each year. Moving to a new system should cut its consumption by about 99% and pave the way for other cryptos to follow suit.

The merge is currently slated for mid-September, but has already been delayed several times. The popular crypto’s price was buoyed by news of another successful test on one of the network’s shadow forks. There’s increasing optimism that developers may be able to roll out the upgrade in September and avoid further delays.

With $34 billion tied up in projects on the Ethereum ecosystem, developers are understandably keen to ensure the historic switch goes smoothly. However, the crypto community is getting impatient. Ethereum has been losing ground to other smart contract cryptos that are able to process transactions faster and at a fraction of the cost. The merge won’t address these issues, but it is a step toward the next planned upgrade, which will.

What it means for investors

Many investors are hoping for an end to the crypto price woes that have dominated 2022. Even relatively small increases spark hopes that we could have reached a turning point. Given that Ethereum is still down 75% from its all-time high and has fallen over 60% in just three months, we’re not out of the woods yet. Indeed, Ethereum and other cryptocurrencies still have some big hurdles to jump over before we can start talking about a recovery.

READ MORE: Best Places to Buy Ethereum

Troubled crypto lender Celsius has just filed for bankruptcy, and there is still a lot of uncertainty in the decentralized lending space. The difficulties started with the collapse of Terra (LUNA) in May. Since then, it’s become increasingly apparent that there’s a lot of interconnectedness between these crypto platforms. FTX founder Sam Bankman-Fried said more platforms will fail and if they do, this will create more headwinds for crypto prices.

Investors are also braced for the impact of increased regulation. In the U.S., various authorities are responding to President Biden’s executive order, which will lay the framework for more comprehensive crypto regulation. Other countries are also in the process of implementing more stringent rules around what has become a sprawling industry. 

There’s also the broader economic picture to consider, which is one of the big reasons for the drop in crypto prices. Many economists warn we could be on the brink of a recession, the worldwide cost-of-living crisis shows no signs of abating, and authorities are struggling to curb inflation.

Finally, the Ethereum merge could be delayed again or encounter technical difficulties. It is an extremely complex undertaking so it would not be unusual if there were a few glitches. Given the high levels of nervousness in the crypto industry, any issues could have an outsized impact on Ethereum’s price.

Bottom line

The Ethereum merge is an important milestone for the world’s second biggest crypto, but there are a number of other factors that could impact its price in the coming months. As a long-term investor, what’s important is to only invest money you can afford to lose and keep focused on where Ethereum might be in five, 10, or 20 years time. In the current volatile market, a 12% gain or loss is not unusual — and it will take a lot more to return Ethereum to its previous highs.