Ethereum has had a busy 2021, with the altcoin surging on the charts to breach $2,000 and touch an ATH of $2,042 over a month ago. However, while its price performance has simmered down since, what is still actively an issue is the much-debated EIP-1559 proposal.
EIP-1559 is an Ethereum upgrade that is meant to dramatically change the network’s structure and overall monetary policy. An implementation of the same was agreed upon on the 5th of March, with the same now scheduled to go along with the London hard fork in July 2021.
Ever since it was first proposed, there has been a lot hanging on EIP-1559. Most of all, it has been seen by many as a magic wand that will resolve Ethereum’s infamous gas fee hikes by overhauling the existing fee structure. Is that the case, however? That’s a tricky question to answer, especially since there has been a lot of misinformation around.
The said misinformation can be classified broadly to relate to three fundamental questions, namely, 1) Will transaction fees actually fall, 2) With a section of the miners revolting, might there be a chain split and, 3) How bullish for ETH really is EIP-1559?
Will there be a fee fall?
As far as the first question is concerned, the answer is that it is very unlikely, even if a lot of people are under the impression that it will. Consider this – What will EIP-1559 actually do? Well, for starters, it will replace the old bid-based transaction system with a fixed fee or a BASEFEE that will adjust itself according to the level of activity and congestion on the network at any given time.
What this will do is it will ensure everyone pays the same market rate, avoiding the kind of spikes seen during the DeFi surge of 2020. Is it that easy, however? According to many, no.
The same was asserted by CoinMetrics’ latest Ethereum Gas Report. It said,
“High transaction fees are fundamentally a scalability problem. If Ethereum can only process a few hundred transactions (on average) per block, there’s going to continue to be high fees as long as DApp usage keeps increasing. Gas prices will continue to be high as long as there’s high competition for block space.”
The same was reiterated by Columbia University’s Tim Roughgarden, with the Professor arguing that high transaction fees, with or without EIP-1559, are unlikely to level off, especially since it is not a mechanical design flaw.
What then? Well, according to CoinMetrics,
“Ethereum scalability solutions (Optimism, Loopspring, etc.) are on the way, which will be the true long-term solution towards decreasing transaction fees.”
All bark, no bite?
Now, the questions and concerns associated with a possible chain split in the near term are perfectly valid, with the likes of Flexpool commenting that “developers have thrown them under the bus.” However, while miner resentment was anticipated, the miners-led “Show of Force” scheduled for the 1st of April was not.
Alas, even when accounted for that, the fact of the matter is that forcing a chain split like this would adversely affect the profitability of miners themselves. In all rational likelihood, miners would rather have slimmer profit margins than face losses.
In any case, following some miners coming out in the open to oppose the aforementioned proposal, Ethereum developers have hastened to complete the transition to PoS. In fact, when the first reports broke out, Vitalik Buterin, one of the co-founders of Ethereum remarked,
“If some miners leave, new ones can come. If the miners attack 51%, we will all move to POS as soon as possible.”
Buterin even went on to release a document expanding on a possible “quick merge via fork choice change” plan, one that the programmer hoped would quell any talk of resistance.
At the time of writing, this seemed to do the trick as the “show of force” and “miner revolt” meant to happen on the 1st came to nothing. As a Redditor pointed out,
“They suddenly realized they were pointing a shotgun at their own feet— then common sense prevailed.”
Is it worth it?
Finally, on to the final question – Is EIP-1559 bullish for ETH? Well, yes and no.
Yes, because EIP-1559’s fee burn proposal will fuel scarcity, and by extension, value creation, pushing the price of ETH higher on the charts. According to what Consenys’s Ben Edgington told OKEx Insights,
“EIP-1559 undoubtedly improves Ethereum. Insofar as price and protocol are connected, the effect should be positive. The absolute impact is impossible to know.”
On the other hand, one can also answer the question in the negative because the success of miners in the ETH ecosystem will be more heavily linked to the alt’s price performance. If ETH tanks, coupled with lower profit margins, unprofitability will set in and miners may drop off, threatening Ethereum’s security.
Simply put, nothing’s for certain. Uncertainty, perhaps, will be the new normal for when EIP-1559 comes in.
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$420M in leveraged long traders liquidated after XRP rallies to $1.96
XRP holders couldn’t have asked for a better year as the cryptocurrency rallied almost 800% and flirted with a $2 level in the early hours of April 14.
In addition to achieving its highest level since January 2018, this robust price increase signals that investors are not worried about the ongoing SEC “unregistered securities offering” dispute.
However, just 6 hours after rallying to $1.96, XRP price crashed by more than 20%. During an interview, DCG Group CEO Barry Silbert said it would be risky for exchanges and companies in the United States to relist XRP ahead of receiving the SEC’s blessing. These remarks may have contributed to the unprecedented $420 million long liquidations on derivatives exchanges today.
Over the past couple of weeks, the primary catalysts for XRP’s rally have been victories in Ripple’s legal battles. Lawyers representing Ripple were granted access to internal SEC discussions regarding cryptocurrencies, and more recently, a court denied the disclosure of two Ripple executives’ financial records, including CEO Brad Garlinghouse.
Considering the recent rally, pinpointing a single reason for the price correction will likely be inaccurate. Nevertheless, the impressive $420 million long liquidations past 24-hours exceed those of Feb. 1 when XRP price crashed by 46% in two hours.
The only logical reason behind this staggering liquidation is excessive leverage used by buyers. To confirm such a thesis, one must analyze the perpetual contracts funding rate. To balance their risks, exchanges will charge either longs or shorts depending on how much leverage each side is demanding.
The chart above shows that the 8-hour funding rate is surpassing 0.25%, which is equivalent to 5.4% per week. Although this is excessive, buyers will withstand these fees during strong price rallies. For example, the current upward price move lasted for almost three weeks, and prior to that another took place in early February.
Blaming the liquidations exclusively on leverage seems a bit extreme, although it certainly played its part in amplifying today’s correction.
Moreover, the record growth in XRP futures open interest was accompanied by a hike in the volume at spot exchanges. As a result, the eventual impact from more significant liquidations should have been absorbed by the increased liquidity.
Cascading liquidations will always take place in volatile markets. Thus investors should focus on how long it takes until the price recovers from it.
Fundamentally, a 10% or 20% intraday drop should not be interpreted differently. The correction depends on how many bids were previously stacked at exchange orderbooks and is not directly related to investors’ bullish or bearish sentiment.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Garry Tan’s 2013 investment of $300K in Coinbase is now worth $2.4B
Garry Tan, a prominent angel investor and the founder of Initialized Capital, was one of the first investors to provide seed funding to Coinbase eight years ago.
Less than a decade later, and after today’s highly anticipated Nasdaq listing for Coinbase’s COIN stock, Tan’s 2013 investment of $300,000 into Coinbase is now worth $2.4 billion.
Coinbase debuted on the Nasdaq on April 14 at $381 per share, making it one of the most hyped listings in the U.S. stock market of the year.
How did $300,000 become $2.4 billion?
In 2013, when Tan invested in Coinbase, it was unclear whether Bitcoin would be recognized as a global asset and an established store of value.
At the time, there were not many reputable exchanges, and the few that existed were often hacked. Tan’s investment took place before the monumental Mt. Gox hack that saw billions of dollars worth of BTC stolen.
Even after launch, Coinbase was not always in an uptrend. According to Coinbase co-founder Fred Ehrsam, from 2014 to 2017 the company faced numerous hardships.
“Over time, crypto grew, and so did the company. A simple #Bitcoin wallet evolved into individual and institutional products to support a blossoming cryptoeconomy. 2 nerds who met on the internet (yes, @brian_armstrong and I met on @reddit ) turned into a company of 1000+. There was serious hardship. In the 3 years between 2014 and 2017, the outside world thought crypto was dead. Over a third of employees left. Yet crypto kept building. @ethereum came on the scene and showed that crypto native applications were possible, opening up a whole new world of possibilities.”
Even if the listing fails to impress, Coinbase has alluring financials
Coinbase is the first publicly listed major cryptocurrency exchange in the U.S. stock market and its availability on Nasdaq now provides mainstream investors with exposure to the crypto sector. Even if the listing fails to impress on day one, the company still has strong financials and user metrics.
1) Today, an exchange will list an exchange.
One of them:
–lists innovative assets
–allows users to onboard
–has a mobile app, website, and API
–made $1b last quarter
The other one is NASDAQ.
— SBF (@SBF_Alameda) April 14, 2021
Coinbase made $1 billion in the last quarter and has more users than every financial institution in the U.S. apart from JPMorgan, making it a highly compelling trade for investors in the traditional financial market.
German software developer donated $1.2M in ‘undeserved’ Bitcoin to political party
A German national who reportedly sees his Bitcoin profits as “undeserved wealth” has donated more than $1 million to the country’s green political party.
According to Hamburg-based news outlet Die Zeit, Moritz Schmidt, a software developer from the northeastern town of Greifswald, has sent one million euro — roughly $1.2 million — to Germany’s green party, known as The Greens or Alliance 90. A party spokesperson said Schmidt had made significant gains during the Bitcoin (BTC) bull run but wanted to contribute to causes related to environmental and climate protection rather than HODLing his crypto.
“The donor has made it clear to us that he sees these profits as undeserved wealth that he does not claim for himself, but wants to use socially, for something that corresponds to his convictions,” said the Greens spokesperson. “In the meantime he sees the Bitcoin system critically, among other things against the background that the necessary arithmetic operations consume huge amounts of electricity.”
Records for the Greens show that Schmidt’s donation is the biggest the party has received this year, with the next highest contribution at 500,000 euro, or roughly $600,000. The funds will reportedly be used for the party’s federal election campaign and the state election campaigns in 2021.
The software developer is not alone in seemingly hoping the crypto industry will become greener. Many have criticized Bitcoin mining for its impact on the environment, with some estimates indicating the network consumes more energy than the entire country of Argentina. However, Mike Colyer, CEO of crypto mining firm Foundry Digital, said this week that he believes mining Bitcoin could eventually help the transition to a “world where 100% of our energy is produced from renewables.”
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