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How will EIP-1559 and “triple halving” affect the price of Ethereum?

3 min read

The Ethereum update on August 5, known as hard fork London, will bring a major change to the EIP-1559 code change, which will begin removing some ETH out of circulation. Theoretically, this should affect the price of Ethereum.

How will the upcoming upgrade affect the price of Ethereum?

EIP-1559 will change the way transaction fees work. Although the details are complicated, the result is that anyone who makes a transaction on the network will now pay a basic fee, which will be burned instead of going to Ethereum miners. To burn in this sense means to take coins out of circulation by basically sending them to an address for which no one has the keys.

The reduction in the ETH supply creates “deflationary pressure” on the ETH network. Although new coins are still being created with each block added to the chain, a bit of ETH also disappears. Deflationary pressure theoretically pushes prices up as supply growth slows.

This can be compared to the halving of BTC, an event during which miners receive 50% less rewards at BTC.

Hasu, a pseudonymous analyst at Paradigm, said the analogy is more or less accurate. “Halving = reducing inflation. Burned fees = reduction of inflation. ”

BTC’s last headline was on May 11, 2020, when BTC rewards fell from 12.5 BTC to 6.25 BTC. The price of BTC that day was $ 8,800. Over the next six months, the price almost doubled. And today, 1 BTC costs you almost $ 40,000.

Maybe ETH will do the same.

However, one question arises; Is this expectation no longer reflected in the current price? After all, there were several factors behind BTC’s growth last year, not just halving. COVID-19, institutional investments from MicroStrategy, Square and Tesla also contributed.

In addition, the Ethereum price has risen this year along with BTC – even without its own halving. On January 1, Ether sold for less than $ 800. By May 10, it had reached an all-time high of $ 4,168. And after falling below 1,800 at the end of July, it returned to about $ 2,600. Over the last year, the price of ETH has risen by 600% compared to 254% for BTC.

This could mean that the price of ETH may have risen in anticipation of a code change, and they will not see many changes afterwards.

Paul Veradittakit, a partner in the crypto investment company Pantera Capital, doesn’t think so.

“I believe that as we get closer and more upgraded, there will be more involvement of those who are not in the community, so that the price can increase a little. I don’t think the price will change! “

Cryptoinvestor Nikhil Shamapant wrote that the supply shock was too great to be appreciated. In April, as the price approached current levels, he calculated that selling pressure with EIP-1559 would drop by about 30%, which means that there will be much less ETH available in the markets to buy.

Not only that, but the market may not have a chance to orientate: “How will the market adapt to the dislocation of supply from EIP1559, 3-4 months later, will be hit again by an even greater dislocation from the merger with Proof of Stake. ”

He called the combination of EIP-1559 and the upcoming move to proof-of-stake ETH 2.0 a “triple halving” because it would reduce selling pressure by an estimated 90% – the equivalent of three BTC halvings.

That could take the price to unprecedented levels – Shamapant sees it at $ 150,000 over the next two years.

All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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