What Would The London Hardfork Bring To Ethereum?

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On June 24th, Ethereum’s London hard fork, which includes the widely anticipated EIP 1559, went live on the Ropsten testnet, paving the way for full mainnet deployment in the last weeks of July. This hard fork could positively impact Ether’s value because of numerous proposed improvements, the most important of which will be transaction fees, including a new deflationary mechanism.

Each block would have a set cost associated with it. Additionally, the shift to an eco-friendly proof-of-stake consensus would be made, as has the addition of a new “scarcity” feature that will limit the number of tokens in circulation. This has the consequence of putting deflationary pressure on the ETH token. In other words, the quantity of ETH will become restricted in the same way that Bitcoin’s supply is constrained. If the supply of a cryptocurrency is limited, demand for it will increase over time, potentially driving the price higher.

As word of the hard fork spreads, experts anticipate that investors will increase their exposure to ETH in the run-up to the hard fork. On-chain statistics indicate that this is already occurring, as Ethereum recorded over 750,000 active addresses last week, significantly surpassing Bitcoin. The data provider, analytics company Santiment, characterized the active-address flipping as “historic.”

But not every stakeholder involved in Ethereum is happy about this as this is not profitable for these groups. Whereas the abovementioned suggested improvements may seem to be a step in the right way for the majority, not everyone is pleased, particularly with EIP-1559. By burning the fees, the second-largest coin would experience deflation. While this may increase Ethere’s prospects of being a favoured store of value asset due to the reduced supply, it will decrease miners’ earnings.

And, indeed, Ethereum mining has been a profitable endeavour, with earnings soaring to unprecedented heights in the last year or two. This may change after the London hard fork, even though users will have the option to “tip” the miners.

As would be anticipated, several mining corporations opposed EIP-1559’s adoption. Others contended that, although EIP-2656 – which reduces transactional gas prices through modular exponentiation (ModExp) – could improve the network’s security and practicality, there would be some possible problems on that front.

Additionally, a recent study by CoinMetrics said that EIP-1559 might have little effect on lowering gas costs. It said, that the high transaction fees are “fundamentally a scalability issue” and that they will stay at this level as long as dApp use continues to grow, which is now the case.

Rather than that, the paper suggested another approach, at least until Ethereum 2.0 is released. It originates from Layer-2 scaling networks, which have previously been implemented in several blockchain applications. In any case, the London hard fork is one of the most anticipated events in the cryptocurrency industry this year. It is expected to have a significant effect on Ethereum’s widely used blockchain. So here, first, we would study the impacts of the announcements regarding London Hardfork, tracing it back from June 24th, and we would try to predict its future once this gets implemented.

Ethereum’s price behavior due to the announcements from June 24th

The price of Ethereum (ETH), like any crypto, saw a lot of fluctuations from June 24th. The market broke the resistance level after a few days of this announcement, and it went into a bullish trend.

This bullish trend peaked when Ether went on to a three-week high at $2,380 by gaining 21%.

Along with this and around the same day, the decentralized finance (DeFi) market, which is primarily based on Ethereum, witnessed total gains of 9%. The entire market value of DeFi coins has reached $67.3 billion. (Source: CoinGecko)

The markets reacted negatively to the FED minutes, as investors remain concerned about the reflation trade. This precipitated a brief sell-off in high-risk assets such as cryptocurrency and equities. Before markets rolling over and succumbing to selling pressure, there was a $2,400-barrier. Risk assets fell across the board and many asset types. It was the same with cryptocurrency.

However, there seems to be an upward possibility once again, as a technical level was respected. A technical indicator may be preparing for further gains, and the 200 days Moving average even crossed above the 55-day moving average during this period. After this fall, it looked like Ethereum was back to its ranging market and should a very neutral sentiment.

Which direction could the prices take from here?

After that, there is a chance of having a golden crossover with the same levels as they seem converging. This could push the prices back up, even making Ethereum break the resistance level highlighted above.

This chart with Fibonacci retracement levels from May 2021 could give us a better idea of the future price direction when it retraces. At the start of the week, Ethereum avoided testing the critical support and resistance levels. Looking at the graph, Ethereum would need to break over the pivot point at $2,200 in order to reach the first significant resistance level at $2,340. If it receives any support from the broader markets, it will improve; otherwise, it will likely rally around the prior resistance levels.

Unless there is a sustained crypto rally, any upside is likely to be limited by the first significant resistance level. Ethereum crypto may hit the second major resistance level at $2,560 in the case of a sustained breakthrough. If the pivot at $2,200 is not breached, the first major support level at $1,990 becomes active. Unless there is another prolonged sell-off this week, Ethereum should avoid falling below $1,900.

The prices took a dip when there were speculations that the London Hardfork was being postponed to August. So based on the observations from June 24th, we can say that any announcement regarding this event would impact the prices, which was primarily positive. Even though there was a negotiation between the bulls and bears, bulls got the upper hand, and we think that this could hold in the future when this event happens. So one should keep an eye on the news and the market sentiments before they enter any trade. If everything goes bullish and if the price breaks all of these bands from the Fibonacci retracement levels, Ethereum has a chance of rallying to $3000.

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Investment Disclaimer

This article is purely for educational purposes, and this doesn’t include any investment advice. Readers are requested to do their research before they consider investing.

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