Ethereum’s London Hard Fork, Can It Show Independent Price Action?

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On July 15th, the Ethereum Foundation issued the official announcement of The. After announcing the successful deployment of the testnet, the London upgrade is fully ready to be activated on the Ethereum mainnet. It will be launched at block 12965000, and the expected time is August 5.

Previously, all three testnets of Ethereum have successfully activated the London upgrade. The Ethereum testnet Ropsten was first successfully activated,  which was activated at block height 10499401 at 10:03 on June 24; followed by Goerli at block height 5062605 at 11:19 on July 1st; Rinkeby The London upgrade was activated at block height 8897988 at 1:27 a.m. on July 8. The testnet Kovan will be upgraded after the Ethereum mainnet is upgraded.

This upgrade is undoubtedly the most concerning in the history of Ethereum, and it may also be the most important upgrade. Until August 4th, discussions on the London upgrade were still in full swing throughout the network, and 35% of the nodes were still not upgraded to support the London hard fork. Why is the London upgrade so controversial and exciting this time? There are many articles explaining the detailed content and significance of this London upgrade, so we won’t repeat them here. We raise another question that we think is worthy of attention. Can Ethereum really show independent price action after this London upgrade?

Why Does Ethereum Need to Show Independent Price Action?

When discussing the cryptocurrency field, people always start with Bitcoin. In the past year, the first choice for institutions and investors to enter the cryptocurrency market is Bitcoin. However, comparing the development of Bitcoin’s chain ecology with other public chains, it is clear that funds should flow into other more vibrant and active public chains.

Although the birth of the cryptocurrency market is not long, it has a “Destined” four-year bull-bear market cycle, which is determined by Bitcoin’s halving mechanism. Although Bitcoin’s cryptocurrency market value is now less than 50% compared to 2013, and Ethereum’s market value is close to 20%,  this is far from enough. Bitcoin’s market fluctuations still have an impact on the overall volatility of the cryptocurrency market.

Source: CoinMarketCap

The continuous decline of Bitcoin’s dominant position in the market will benefit the health of the cryptocurrencies and the development of the crypto space. Bitcoin has a “blood-sucking” effect on other currencies: Bitcoin rose, other currencies rose slightly; Bitcoin rose sharply, other currencies rose slightly; Bitcoin fell, other currencies fell sharply. Investors’ money eventually flows into Bitcoin passively. Such a cryptocurrency market is unhealthy. In addition, the development of the cryptocurrency field also requires funds to flow into other public chain ecosystems. It is impossible to form a scale if there is no gameplay without players and money.

Ethereum’s Short Term Independent Price Action

Ethereum’s short-term independent price action can take the strong rebound at the end of July as an example. Bitcoin and other mainstream currencies started to turn from rising to falling on August 1. Ethereum has maintained an upward stance in these two days. The price broke through 2600 points. Although Ethereum has shown an independent price action in the short term. However, the follow-up trend is significantly affected by the overall market condition.

Source: TradingView
Source: TradingView

This short-term price increase of Ethereum is inseparable from the impact of the London upgrade. According to Glassnode, Ethereum holders are actively transferring their tokens from centralized exchanges. At the same time, the amount of Ethereum stacking in smart contracts is increasing. This sign indicates that the willingness of holders to sell is weakening. The increase of Ethereum pledged in smart contracts also shows that holders hope to continue holding coins in the short term.

Source: beaconcha.in

Lift the Restrictions of Ecological Development on Ethereum

The Ethereum London upgrade includes 5 EIPs, EIP-1559, EIP-3198, EIP-3529, EIP-3541 and EIP-3554. Each EIP contains code changes aimed at optimizing and improving the network performance of Ethereum, reducing the current high Gas fees, reducing network congestion, improving network stability, and improving user experience.

At present, the Net Value Locked of DeFi is nearly $65 billion, and the 24-hour trading volume of DEX exceeds $3 billion. One of the biggest limitations of DeFi development is the high gas fee and network congestion. At present, the average gas fee on Ethereum is 26-34 Gwei, and this data averaged as high as 200Gwei in August last year. In addition, the gas fee on Ethereum still fluctuates drastically. For example, the NFT sale of Animetas on the evening of July 31 caused the gas fee of Ethereum to soar in a short period of time, which exceeded 1250 GWei at one time.

Source: Etherscan

In addition, the development of GameFi, a new hot spot on Ethereum, is also troubled by Gas fees. Taking Axie Infinity as an example, the problem of high transaction fees on Ethereum is one of the factors that discourage many players from wanting to enter. The congestion problem of the Ethereum network will lead to a sharp increase in handling fees and bring users a very bad transaction experience. The launch of Ronin, Axie Infinity’s exclusive Ethereum sidechain, is a key catalyst for the game’s explosive growth in the past two months. Ronin’s Gas fee is negligible compared to Ethereum.

The London upgrade aims to solve the problems of congestion and high gas fees fundamentally through adjustments to the economic model. Once the problems of network congestion and high gas fees are resolved for developers and users on Ethereum, Ethereum’s availability of the square as a basic network facility will be greatly improved. The ecological development of Ethereum will inject confidence in the market performance and both the market value and the scale of users will be improved. The direct destruction of the Base fee in the London upgrade will also have a deflationary effect on ETH as an asset to a certain extent. Ethereum is expected to truly emerge from the independent price action.

The End

In addition to the upgrade of Ethereum London, there are many projects on Ethereum that are experimenting on the Layer 2 track to explore solutions for transferring information that needs to be processed on the chain to processing off the chain. Regardless of whether it is the London upgrade or Layer 2, it can reflect the prosperity of the ecology on the Ethereum behind it. With DeFi, GameFi, and SocialFi on the table, who knows what surprises Ethereum will bring. Let’s wait and see.