Ethereum Prices Hit Resistance As Major London Upgrade Looms

Ether prices, which made steady gains over the last two weeks in anticipation of the Ethereum London upgrade, are now stalled now that the hard fork is just 24 hours away.  

The world’s second most popular cryptocurrency had looked to continue its upward trend, as Ethereum prices rose over the last 14 days — its longest sustained price increase in ETH’s short history — with Ether climbing over US$700 in that period.  

But Ethereum’s price has fallen slightly since the crypto markets opened today. After rising from US$1776 on July 21 to US$2,700 yesterday, the price of ETH may finally be meeting some resistance, analysts say.

“Ether has notched a 12-day winning streak, the longest ever,” blockchain analytics firm IntoTheBlock tweeted. The firm also forecasted US$2,598 and US$2,753 would be key resistance levels on Ether’s path toward $3,000. Ethereum has fallen slightly today to US$2,500 from its weekly high of US$2,695.

Cryptocurrency prices overall have been on the ascent again, but Ben Caselin head of research for AAX exchange sees a lot of positivity in Ethereum’s price movements.

“Over the past week, Ethereum has soared alongside Bitcoin, and while the latter has since come down a bit as Bitcoin wrestles the 42k price level, Ethereum has broken an important descending trend-line against Bitcoin, and is now hovering above 0.06 BTC per ETH.” said Caselin in an interview with Forkast.News. “This move is likely to be driven by expectations around the upcoming upgrade, after which there may be some corrections.”

Ethereum’s London hard fork is an update to the Ethereum blockchain that was originally set to take place on Aug. 4 but has since been rescheduled to Aug. 5. The London upgrade is a key development that will prepare the network’s transition to Ethereum 2 — from the platform’s current proof-of-work consensus model to proof-of-stake. The London hard fork will introduce new Ethereum improvement proposals, which are set to make the blockchain more competitively priced and user-friendly as well as introduce a new level of scarcity that could boost Ethereum prices further.

What is the ‘Ethereum halving’?

Ethereum’s London hardfork will significantly alter the way its transactions are processed, how miners are compensated and the supply of Ether tokens. The upgrade will introduce Ethereum Improvement Proposal (EIP) 1559 which will provide clear pricing on user transaction fees to be paid that are then”burned” — or an intentional destruction of tokens — to reduce the supply of ETH.

“The fees collected from the Ethereum users actually consist of two components. There’s the base fee and a tip, after the London update the base fee will actually be burned. And for the first time Ethereum will have a mechanism to take ETH out of the supply and reduce the rate of growth of the supply of ETH overall in the market,” said Alan Chiu, CEO at Enya.ai, which provides layer 2 scaling services for Ethereum, in an interview with Forkast.News. “Some are speculating that this will lead to an increase in the price of Ether itself.”

Ben Emons, the managing director of global macro strategy for an economic research and advisory firm — which he asked not to name as his personal views may not be representative of his company’s position — is predicting that the London upgrade will have a positive effect on Ether’s price and sees the implementation of EIP 1559 as similar to Bitcoin’s halving events, which have helped propel Bitcoin to record prices in the past.

“The price of Ethereum could be sharply boosted, as witnessed by the recent rallies in Ether-related stocks,” Emons told Forkast.News. “Ethereum has been gaining market share of nearly 27% when investors flocked to Ether during May’s crypto market crash.” Ethereum stocks are different from shares of companies that hold Bitcoin on their balance sheet because of sentiment of the smart contract blockchain’s potential, and the intentions of companies holding Bitcoin to use BTC as a payment, as well as for blockchain transactions reasons.

“Ethereum’s halving event could potentially have a broader impact,” Emons said. “The utility of Ethereum is how blockchain is used, and [the London hard fork] event is likely to make blockchain faster and more scalable, and therefore require Ether for applications, giving it a competitive advantage over Bitcoin and other cryptocurrencies.”

The burning mechanism of EIP 1559 is also one of the most controversial aspects of the London upgrade because of its potential to reduce Ethereum miners’ revenue. Up to now, Ethereum’s “gas fee” is determined by a free market that operates like an auction — users set aside a certain amount of ETH for their transaction to be processed, and the highest priority goes to the highest bidder. But that can also lead to spikes in gas fees as well as losses to users in money or time when they overbid or underbid. Under EIP 1559, the base fee will be set by the Ethereum protocol, and only if a user decides to “tip” extra to prioritize a transaction would miners earn extra ETH. 

While Emon expects that Ethereum miners may experience an initial hit on revenues because of the change in fees, “over time as the value of their Ether holdings grows, miners will be able to accumulate coins through fewer failed transactions.”

How will the Ethereum upgrade affect DeFi scalability?

Unlike Bitcoin, which is largely only used as a store of value, the Ethereum blockchain has been far more ambitious since its 2015 launch. Its proponents tout the blockchain as being the potential backbone of the internet of the future. Ethereum is a smart-contract platform, and as the first mover in this field, the majority of decentralized applications (DApps) and decentralized finance (DeFi) have been built upon its network.

But Ethereum’s overwhelming popularity has also led to massive amounts of network congestion that is now viewed as holding back the growth in other parts of the blockchain industry. Critics blame Ethereum’s slow processing times, high transaction fees and current lack of ability to scale as a limiting factor on the DeFi sector. At any given moment , Ethereum’s gas price can fluctuate wildly depending on the demand for the network, which can introduce a lot of uncertainty and difficulties in financial planning for Ethereum’s business users. The London hard fork, if it works as intended, will make Ethereum’s transaction fees more predictable.

“The upcoming London Hard Fork is a huge step forward for Ethereum,” said Joshua Scigala, co-founder of TheStandard.io, a DeFi infrastructure project, in an interview with Forkast.News. “The DeFi space now moves more money a day than the entire FinTech industry put together and this includes Venmo, which is the unicorn darling of payments. This space is growing far quicker than most realise but for this growth to continue, ETH needs to scale and the London Hard Fork is a major step in the right direction.” 

Scigala and others firmly believe that, for DeFi to succeed, Ethereum needs to scale.  

“Of course, people are also keen to know how this will affect price, but crypto investors need to understand the difference between price and value — fundamental upgrades to the network add a huge amount of value, and this will hopefully also reflect in the price soon after,” Scigala added.

Edan Yago, a contributor to Sovryn, the Bitcoin-based Defi protocol, told Forkast.News that he is not convinced that Ethereum’s price will rise because of the London upgrade. While Yago believes that the London Hard Fork is a well-thought-out initiative, as it will decrease the volatility of Ethereum’s transaction fees, he thinks some investors have lost sight of the upgrade’s goals and what it’s all about.

“They’re talking about it as a new monetary policy, which is superior to Bitcoin’s monetary policy because it could be more deflationary, but whether the policy is deflationary or not isn’t really the issue,” Yago said. “That is missing the point of what makes sound money, which is not if it is inflationary or deflationary but rather if it is predictable. The fact that Ethereum is again changing its monetary policy, I think, draws a clear distinction between Bitcoin, which is designed to be a monetary asset, and Ethereum, which is a technological protocol.”

The London Upgrade is scheduled to go live at block #12965000, at around 7:36 p.m. Hong Kong time on Thursday, Aug. 5. Ether’s price is currently at US$2,495.96, down 1.8% on today’s trading. 

Will the London upgrade propel Ethereum’s price past its current resistance levels and beyond, or are all the hopes and expectations for the hard fork already priced in? We will soon find out.