Experts assess London hard fork’s impact on Ethereum’s price

Approximately on August 4, at block #12965000 on the Ethereum mainnet, the London hard fork will be activated. ForkLog’s interviewed experts explained its significance for the industry and whether the protocol update could affect the prices of the leading and second-largest cryptocurrencies by market capitalization.

The London hard fork includes the proposal [simple_tooltip content=’Ethereum Improvement Proposal, proposal to improve Ethereum’]EIP[/simple_tooltip]-1559, which contemplates more ‘fair’ fees for miners for including a transaction in a block. A portion of these fees will be burned algorithmically depending on network load. This is intended to implement a deflationary model and reduce the supply of Ethereum in circulation, explained Denis Voskvicov, head of Exantech.

“When network traffic is high, fees will fall; when it is low, they will rise. In this case, miners are incentivised to continue operating, and users, facing the usual high network load, will pay less for transactions,” he said.

If the hard fork activates successfully, the profitability and popularity of the Ethereum blockchain in the decentralized finance market will increase, said Yuri Mazur, head of the data analysis department at CEX.IO Broker.

“Potentially, this will broaden the profitability range of decentralized liquidity protocols, including in arbitrage trading and the use of [simple_tooltip content=’loans obtained for one or several consecutive operations with interest paid to the lender upon completion’]flash loans[/simple_tooltip], as transactions on the Ethereum blockchain will cost less. This could also spur the development of the DeFi sector through the emergence of new liquidity protocols on the Ethereum blockchain and increased liquidity in smart contracts,” he explained.

In this regard, one of the factors driving Ether’s price is the increase in the number of transactions on the network and the total value of fees for them.

“Because fees are paid in Ether as well, this could lift demand for it,” Mazur added.

The forthcoming hard fork will improve the operation of the Ethereum blockchain, increase transparency in fee formation, and, by reducing the supply, raise the asset’s value, argued Yanis Kivkulis, EXANTE’s chief strategist.

“Miners will earn less, but given that the blockchain becomes more convenient and scalable, the number of unconfirmed transactions should fall. In the long run, this should raise the coin’s value, offsetting miners’ reduced earnings,” the strategist said.

Kivkulis also recalled the London code’s embedded “difficulty bomb,” activation of which was scheduled for December 2021.

In general, all these changes prepare the network for a transition to a new transaction-confirmation method – from Proof-of-Work to Proof-of-Stake, the specialists noted.

What is Ethereum 2.0?

After the activation of the hard fork, Ethereum will face selling pressure, predicted Yanis Kivkulis:

“The price of the cryptocurrency could fall under selling pressure in the short term. Probably Ether has already realised its main growth potential based on the approach of the hard fork.”

According to Yuri Mazur, an analyst at CEX.IO Broker, at the moment one can speak of renewed Ether growth, which began last week.

“Around $2,840 lies a resistance level, the break above which could open the path to further upside,” Mazur added.

Experts agree that the update of the second-largest cryptocurrency will not directly affect Bitcoin’s price, as the two no longer show a tight correlation.

“However, one can suppose that during a rapid rise in Ether, some of the capital could be moved from Bitcoin into it,” Denis Voskvicov, head of Exantech, conceded.

Significant price swings in Ethereum could trigger a spike in activity on the crypto market. In the short term, according to Mazur, Bitcoin will be considerably less dynamic than Ether and will be constrained within the $38,000–$42,000 range.

In late June–early July, developers successfully activated the London hard fork on the main test networks.

Earlier, the London EIP-1559 divided miners into two camps.

London will be the second consecutive hard fork in the Ethereum network addressing miner-fee related issues. In mid-April 2021, on the mainnet of the second cryptocurrency, the Berlin upgrade was activated, which included two EIPs aimed at changing gas costs.

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