Bearish sentiments seem to be prevailing this week, thus squashing any bullish attempts in the crypto market. However, you may have noticed that this time Ethereum (ETH) has not been as volatile as it usually is when the bears flex their muscles and there is a perfectly good explanation for it.
Ethereum is one of the many blockchain projects scheduled to roll out updates for their networks. Its EIP 1559 upgrade is set to take place on August 4th which is just days away, as part of the London hard fork as per the recent announcement by Ethereum developer, Tim Beiko. It is a major network upgrade that is expected to deploy much-needed changes to the Ethereum network.
Previous bearish movements in the crypto market usually have a pronounced effect on ETH performance. For example, it would likely have tested the $1,700 price level like it did the previous time that Bitcoin dropped to $31,000. However, this time it has remained above $1,900, likely because ETH holders do not want to sell, else they miss out on the potential upside after the upgrade.
Major network upgrades such as the EIP-1559 are usually considered catalyst events. ETH holders know this and as such, they anticipate a substantial price gain which they cannot afford to miss out on. Selling right now during the current dip is too risky considering how close the upgrade is. Digital assets usually experience higher demand in the days leading up to a major upgrade.
ETH is currently trading at $1,918 and is down by just 1.45% in the last 24 hours, although it has shed 11.30% in the last 7 days, while its market cap is down to $219 billion at the time of this press.
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The expectation of low selling pressure as the upgrade draws near is consistent with the declining selling volume on the ETH charts. The stochastic RSI indicator also highlights that the cryptocurrency is oversold and it looks like the bulls are on standby waiting to charge. The next few days will likely be characterized by more demand for ETH in anticipation of the catalyst event.
One of the main reasons why the EIP-1559 upgrade is highly anticipated is that it will introduce changes to the Ethereum network’s fee structure. It will eliminate the current first-price auction approach to gas fee calculation on the network in favor of a discrete base fee in each new block. The upgrade will also introduce a “tip” function that applications or users can pay miners for faster transaction processing.
The EIP-1559 upgrade is also expected to transform ETH into a deflationary cryptocurrency because a portion of gas fees on the network will be burned, while the rest will be rewarded to miners. The upgrade might transform ETH into a deflationary asset if there are enough transactions on the network. Burning a proportion of the fees on the network will gradually reduce its supply.
Gas fees reached an all-time high in 2021, triggering complaints about the expensive nature of transactions on the Ethereum network. However, Consensys claims that the EIP-1559 upgrade will slightly lower transaction fees on the network. The margin by which the fees will reduce is still not clear. However, the upgrade will also bring more transparency as far as fees are concerned, wallets such as Metamask will have better fee estimates because of the base fee approach.
The upcoming Ethereum upgrade might potentially have other far-reaching positive consequences that will make the network more usable. If that will be the case, then it will attract more projects and consequently secure a brighter future for ETH.
Sydney has 20+ years commercial experience and has spent the last 10 years working in the online marketing arena and was the CMO for a large FX brokerage.
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