Analysis of Ethereum’s London Hard Fork


04 August 2021 | ZebPay Trade-Desk

The London hard ‘fork’ is most likely to take place tomorrow after a slight delay. Originally, the much-awaited fork was scheduled to take place in the last week of July. Ethereum seems to have embarked upon its path to recovery, crossing the $2,600 mark on 02 August this week. ETH rallied close to 40% from its $1,750 low and certainly, part if not all of the recent recovery can be attributed to the much-awaited London hard fork.

In this article, we will be looking at how ETH has been performing over the past two weeks, and what implications might the ‘fork’ have on the asset over the next few days. To read about what the upgrade is, and both from a historic and technical perspective, please click here, and we have covered this in detail in our previous report.

Traders and investors see the EIP-1559 launch as a bullish driver for Ether price, as it is likely to reduce gas fees. However, whether the rally will sustain or not, remains uncertain. The Ethereum London hard fork will now take place this week but is delayed as the previous schedule mentioned in late July.

Miners will be affected the most by the EIP-1159 upgrade, as it will burn a portion of the fees generated on the blockchain, in turn reducing their revenue. Potentially, as miners face the loss of revenue, it could just be a matter of time before another network benefits, and some migration is seen. While this scenario is distant, this could still undoubtedly put pressure on Ether price in the future. However, the main concern is the network itself, because delaying the scaling solution might push users and dApps to alternative solutions. Moreover, the migration to PoS opens doors to strengthen competing blockchains.

Hence, currently, there is a lack of convincing evidence that the rally will sustain, and that is understandable, due to the unknown nature of the risks presented by the London hard fork and the uncertainty caused by unsatisfied miners.

In the chart below, we look at what has been happening over the last two weeks or so. ETH had taken support around $1,720 multiple times in the past. This time too it did the same and has surged almost by 56% from $1,721 up to $2,697 since then. Post this rally, the asset is facing resistance around $2,650 and has witnessed some profit booking at these levels.

Hence, we conclude that ETH to further rally needs to trade and close above $2,650. From a volume standpoint, the offset of the rally fueled some volume recovery, which is probably why the prices have been able to hold firm.

Over the past two weeks, volumes have recovered, up over 35%, which is great news, as it re-instills confidence among traders and investors alike. Moreover, this is the first time since the mid-May sell-off, that we have witnessed a surge that has held up convincingly, and at the same time has been supported with good volumes.

Ethereum Technical Analysis and Chart
USD ($)20 Jul 2103 Aug 21Previous WeekCurrent Week
CloseClose% ChangeHighLowHighLow
Digital AssetVolume20 Jul 21 Close03 Aug 21 Close
Digital AssetMarket Cap.20 Jul 21 Close03 Aug 21 Close

The upgrade will most certainly enhance the ETH blockchain, and will most certainly impact the way in which the asset is priced. While there are several technical developments taking place, what will be of keen interest to traders, and investors alike would be:

  • The most attractive thing about ETH 2.0 is that TPS would be much higher than what it is currently and it would ultimately lead to less congestion and significantly reduce gas fees. 
  • Etheruem will become more efficient, leading to growth. Growth will reduce the volatility of the asset and the inflation surrounding it. 
  • After the upgrade miners wouldn’t receive the earlier amount they used to get, but a tip that the customer might give for them placing the transaction on the immediate block. This might lead them to migrate to other blockchain systems due to reduction in their earnings, and their incentive to mine might reduce.
  • ETH will be burned after every transaction on the blockchain. In other words it would create a short term escalation of price, due to the supply crunch, and the lower availability of ETH across global exchanges.

Ethereum as an asset has grown many folds achieving great heights. But high network congestion, swelling gas prices, and low transactions per second have led to a lot of migration, and the rise of competition. In order to deal with this in the best possible way, the London fork has been introduced.

The upgrade will help to solve some of the existing problems and make the Ethereum blockchain more efficient. This will have a great impact on all the parties involved. The retail customers of ETH would be at the winning end while miners might be affected negatively.

Last Sunday the asset reached a high of $2,699. We saw some traders selling ETH and book profits during that rally. The volume has behaved a certain way, the amount of exchange on the reserve has fallen, the outflow has seen a spike meaning that traders want to hold on to ETH and not exchange it for other assets before the London hard fork.

There has also been a rise in ETH deposits into the ETH 2.0 smart contract, and this can be perceived as a bullish affair because it removes the active supply of Ethereum from circulation when there is an increasing demand for it. A key point to note though is that the migration to PoS opens doors to strengthen competing blockchains.

Hence, currently, there is a lack of convincing evidence that the rally will sustain, and that is understandable, due to the unknown nature of the risks presented by the London hard fork and the uncertainty caused by unsatisfied miners. Only time shall tell, what is in store for ETH in the longer term, but in the immediate horizon, we do anticipate current levels to hold fort and even the possibility of another rally.


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