Must-see predictions for ETH 2.0 after the London hard fork

 It has been more than a week since the Ethereum London hard fork, and since then, Ethereum has become more and more powerful.

Today, I will discuss Ethereum in depth again. This article will explain how the London upgrade affects prices and what all this means for ETH 2.0.

What is the London upgrade?

First, we need to explain what the upgrade in London is and why it is so important to the Ethereum network. In essence, this is an upgrade of Ethereum, including many Ethereum improvement proposals or EIPs.

The most important one is EIP-1559. This is an EIP that has been developed for some time and aims to fundamentally change the way the Ethereum transaction mechanism works. It will eliminate the way users compete for block inclusion through the bidding system. Users will raise gas fees for transactions, and these fees will be fully earned by the miners who promote block development.

However, this often incentivizes miners to drive up these fees through a strategy called “Miner Extracted Value” (MEV).

What EIP-1559 does is that it will change the calculation method of the amount of ETH required for the transaction and the whereabouts of ETH. There will be a so-called base fee, which will be determined by network requirements and will be dynamic. This fee will be destroyed, that is, eliminated from the ETH supply.

In addition to this basic fee, users will also have a priority fee. This is also called a tip, which is paid to the miner so that the user’s order enters a block first.

However, when it comes to this particular EIP, the most important thing to focus on is the basic cost. Because it is still a response to network demand, it will not have a substantial impact on the amount of fees paid. However, because it is being burned, it will bring long-term cumulative benefits to all participants.

The miners were not very happy about this, they said it was unnecessary to target. However, despite their opposition, the upgrade passed. On August 5, at block 12965000, London went online. The upgrade process is as smooth as anyone imagined.

More than 96% of Ethereum nodes have been upgraded to new clients, and all mining pools have implemented new codes. In fact, this is the first time in the history of Ethereum that no blocks have been dug up on the old chain after the fork.

In addition, the upper limit of gas cost is stabilized at the target of 30 million US dollars. Compared with the model, the distribution of gas usage is quite accurate. Although this may sound nonsense to us, it is important because it shows how this upgrade was coordinated and planned. This is a sign of ETH 2.0. But let’s not jump to conclusions too early. For our users, the most important question at the moment is what this means for the economics and usability of the ETH token.

Must-see predictions for ETH 2.0 after the London hard fork

Impact of the upgrade

As the basic fees started to be paid, ETH began to be destroyed. Many websites are tracking the ETH destruction rate. We have more than 28,000 ETH destroyed and are counting, which is equivalent to 36% of all issued ETH.

This basically means that the inflation rate of ETH has dropped from 4.2% to 3%. However, it is important to understand that this is not deflation, but a reduction in the rate of inflation. This is because users still have block rewards for miners. However, due to this destruction, the issuance rate has decreased.

Must-see predictions for ETH 2.0 after the London hard fork

You can see what it looks like from this picture. Of course, this is still bullish for ETH. Think of it this way. If you are willing to pay x for ETH based on scarcity and future demand before the upgrade, then after the future fork, the scarcity price will definitely be more valuable.

Must-see predictions for ETH 2.0 after the London hard fork

This is why many people emphasize the Bitcoin halving so much. The slowdown in supply growth will affect asset scarcity.

Not only that, the selling pressure on the market should be even smaller. Miners are more likely to want to keep ETH on the balance sheet instead of selling it immediately. Precisely because they think it will be more valuable in the future.

Less selling pressure from miners means less impact on prices. This may be the reason why ETH rebounded after the fork and did not sell as many people expected. When it comes to network costs, there are no particularly noticeable changes. Some users are disappointed, but as mentioned earlier, this is not the goal of the upgrade.

However, in terms of usability, this is good. In the past, users only had to pay a gas fee that they thought could complete the transaction, but now they have two more transaction parameters. They can set the highest fees and highest priority fees for transactions.

The maximum fee is the total amount they are willing to pay for the transaction. This will include basic fees and tips. If the basic fee is higher than the maximum fee, the transaction will not proceed.

However, by further increasing the maximum priority fee, users can more specifically determine the amount they are willing to pay for the tip. Therefore, if the maximum transaction fee is lower than the basic fee plus the maximum priority fee, the user will receive a refund.

In addition, another reason why the new transaction mechanism is more friendly is that users can easily send the optimized base fee and know how much it is. They are very sure of the transaction in the block and do not need to guess the gas cost of the future block.

For users who often use DeFi, this benefit is even more obvious. But in the context of the upcoming ETH 2.0 upgrade, the most exciting thing is the meaning of EIP-1559. This is good for all of us to a large extent.

ETH 2.0

ETH2.0 will transform Ethereum from Proof of Work (PoW) to Proof of Stake (PoS).

Not only that, we will also see other scaling technologies implemented on the network, such as sharding.

The roadmap of ETH 2.0 has gone through three stages. We have passed the initial stage of the beacon chain. However, the next stage is the first stage, the Proof of Stake (PoS) merger. At this stage, we will move to Proof of Stake (PoS).

Must-see predictions for ETH 2.0 after the London hard fork

Proof of equity will have greater scalability, which will reduce transaction costs and speed up transactions.

This ETH 2.0 merger is likely to happen early next year. Regarding this transition, the most important thing is the impact it may have on the destruction and issuance of ETH.

Must-see predictions for ETH 2.0 after the London hard fork

I would like to draw your attention to this spreadsheet, which was drafted by Justin Drake, a senior Ethereum researcher. Yes, this is Justin Drake, one of the main developers of Ethereum 2.0.

In this spreadsheet, he completed some rough calculations on the supply return and destruction rate of ETH on the merged Ethereum network. This is very enlightening.

Must-see predictions for ETH 2.0 after the London hard fork

Just point out some of the most important numbers here. First First, in the day of the merger, the supply of ETH estimated at 120 million ETH. Assuming all other parameters, such as pledges, the spreadsheet estimates that we will have 2.7 million ETH burned and 963,000 ETH issued. So, this basically means that the amount of ETH burned exceeds the new ETH supply. This will make it a deflationary asset.

The supply of this asset is declining every year. The developers of ETH refer to it as an ultrasonic currency. According to these forecasts, it will take about 11 years for ETH to reach the supply of 100 million ETH. Not only that, Justin also calculated the reduction in ETH selling pressure on the open market.

In general, due to the upgrade, about 7 million ETH will not enter the public market. Of course, this is good for prices, because prices respond to the balance between buying and selling. Therefore, these figures look very optimistic.

Must-see predictions for ETH 2.0 after the London hard fork

We can also look at these predictions based on other circumstances. Even with a less optimistic and conservative estimate, we will burn 1.3 million ETH. At the same issuance rate, this will still plunge ETH into deflation. Daily selling pressure will also drop to 5.4 million ETH.

The crux of the problem is that after the merger, the deflation rate of ETH may reach 1.4%. Bitcoin’s inflation rate is 1.8%, and the current inflation rate of US dollar fiat currency is more than 5%.

Now understand why ETH can be considered ultrasound. Of course, it should be emphasized that these are only estimates. This model is based on the input of expense consumption rate and the pledge growth at this time.

If you ask when to merge, personally tend to be conservative. We know from past experience that the development work is much longer than expected, especially on large open source projects like Ethereum. Therefore, from a technical point of view, the situation is quite optimistic. However, in the medium term, there are other fundamental factors that may have a significant impact on the price of ETH. Let’s start with some data on the chain.

On-chain data

The first thing to look at is the foreign exchange balance. This is because it gives us a rough idea of ​​how much ETH may be withdrawn from the tradable supply.

Must-see predictions for ETH 2.0 after the London hard fork

It can be seen from the figure that since the beginning of the year, the amount of ETH held by exchange addresses has been declining. Our transaction volume has gone from just over 19 million to less than 16 million today. More than $9 billion in ETH has been removed from the order book.

Of course, this is not just because the exchange lacks ETH. The total amount of ETH held in smart contracts has been rising this year. This is ETH, most likely to be used in the DeFi protocol to provide liquidity, earn interest, or other types of liquidity mining strategies.

Must-see predictions for ETH 2.0 after the London hard fork

The key is that this ETH is used for a specific purpose and to generate revenue. Therefore, those who control it are unlikely to want to sell it, and ETH just sits in the wallet and does nothing.

This is another picture. This is the total supply of each wallet with a balance greater than 32 ETH. The reason this is important is that this is the amount of ETH required to pledge ETH to the beacon chain.

Must-see predictions for ETH 2.0 after the London hard fork

This can be further verified by checking the current popularity in the beacon chain smart contract. This number currently exceeds 6.6 million ETH, and it is still rising.

The consequences of ETH being locked in the 2.0 equity contract are more serious, because the equity contract cannot currently be revoked before the equity certificate is merged. As Justin Drake pointed out in that report, the most optimistic estimate is that this could happen as early as February. However, as mentioned, it is more likely that this will be pushed to a conservative schedule on April 1.

Must-see predictions for ETH 2.0 after the London hard fork

Until then, the $19.5 billion ETH will not be close to the public market, and this number is still rising. Well, the indicators on the chain are very optimistic, but what about the situation in the institutional sector? After all, this was the main theme of the past year.

Wall Street adoption

The typical representative of Wall Street is of course Goldman Sachs, which has become more and more active in its comments on the encryption field.

According to a business insider, a few weeks ago, GS sent an internal notice stating that Ethereum would one day flip Bitcoin.

This is based on Ethereum being cited as ” it is the most popular development platform for smart contract applications as a platform for native digital currency. “

As pointed out in a previous article on Ethereum, Goldman Sachs decided to provide futures and options related to Ethereum before it had similar Bitcoin tools.

Another very important report released recently is Coinbase’s Institutional Investor Report for the first half of this year.

But there are some very insightful places. First of all, in terms of transaction volume, the transaction volume of ETH is indeed soaring. Last year’s transaction volume was 92 billion. This year is 1.4 trillion. This figure has increased by 146% in just one year.

Must-see predictions for ETH 2.0 after the London hard fork

Coinbase also commented, “ Many of our large institutional clients, including hedge fund donations and corporates, increased or increased their first exposure to ETH in the first half of the year, believing that the asset has long-term staying power. ”

Coinbase also recently released its second quarter earnings report. In the second quarter of this year, ETH’s trading volume on its exchange surpassed Bitcoin for the first time.

Another very interesting agency report you might want to see, Genesis. This is an over-the-counter trading counter headquartered in New York, which has been providing agency services for regular institutional bulk orders for many years.

The report said that certain assets accounted for the proportion of transaction volume: Bitcoin transaction volume has dropped from 80% at the end of the second quarter of last year to about 47% in the second quarter of this year.

Looking at the trading volume of ETH, last year, ETH’s trading volume was less than 5% of Genesis’s trading volume, and this year, its trading volume reached 25% of the second quarter’s trading volume.

Another chart below is the market capitalization of Bitcoin against ETH. As you can see, this number has been declining sharply since the beginning of this year, and they stated that it “shows that the role of ETH as an institutional portfolio asset is expanding.”

Must-see predictions for ETH 2.0 after the London hard fork

Option market

In fact, there is so much demand for ETH, but the supply is limited, which is bullish enough. However, there are some other data points that we can look at to understand where the market thinks ETH might be heading.

When pricing future assets, look at the trend of the options market. This is because these tools reflect the market’s best estimate of the potential price due in the future.

First of all, I want everyone to pay attention to this article on Coindesk. After the London Hard Fork went live last week, the activity of Ethereum has increased a lot.

This part of the trading volume is mainly call options. Taking into account the purchase of options, call options are a bullish signal. But in this market flow, it is not just the types of options sold that are interesting.

Must-see predictions for ETH 2.0 after the London hard fork

This is also the strike price of these options. The most popular options are those that expire in March next year, with strike prices of 50K and 40K, respectively. Most of them are traded under the institutional model, which further proves that there are some very optimistic long positions in the hedge fund space.

Must-see predictions for ETH 2.0 after the London hard fork

We can also see the price investors are willing to pay for call options and put options. Obviously, if the price of a call option is higher than the price of a put option with the same sensitivity, it is more a bullish signal. The measurement method is to use the option sku.

You can see how ETH 25d Skew evolved in this chart. For options with different expiration date ranges, sku has been declining.

Must-see predictions for ETH 2.0 after the London hard fork

Therefore, this means that within a period of time, call options become more expensive than put options. The entire term structure is bullish.

Must-see predictions for ETH 2.0 after the London hard fork

in conclusion

The London hard fork demonstrates how smoothly the Ethereum community has implemented the upgrade of the basic protocol. This is a good display. Through the Proof of Stake (PoS) merger, we will see ETH become an ultrasonic currency. This supply more money will be reduced year by year, day by day, decreased by block. It seems that most crypto communities agree that ETH is being stacked, pledged, and removed from the open market.

This is a rare store of value, and the supply will be even more in short supply within one year from now. It’s not just that we are trying to absorb ultrasound funding. Institutions are working hard because they continue to accumulate more. This is a subject that we believe will not slow down in the short term. Taking all these factors into consideration, it can be understood why options that expire next year have such a high strike price. The market momentum is on our side, and the ETH bull market has not lost its momentum. If ETH is 17K, it will give it a market value equivalent to Microsoft.



Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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