17 September 2020

Transacting on Ethereum (ETH) can be a challenge sometimes. Gas fees, which is the amount of fees that are paid to miners to complete a transaction on Ethereum, went through the roof early in September and ate away at gains from trades. But how about moving value in an active, secure, and truly decentralized network? Ethereum encapsulates every nuance of what Satoshi Nakamoto–the elusive founder of Bitcoin, wanted to see in his revolutionizing “P2P e-money” coin.

There are key differences between the two networks (Bitcoin vs. Ethereum), each with an army of overzealous fans. Still, both are complementary, and often, on-chain metrics move in synchrony.

Take, for example, the contentious average transaction fees.  Aforementioned, the lower it is, the better the experience. However, the problem with distributed and completely decentralized networks is the trilemma between choosing the inevitable; security while remaining autonomous without a controlling entity, and scalability. 

Ethereum bears the former but grossly lacks the latter, explaining the painfully high transaction fees. Ironically, DeFi farmers have been more than willing to bite for quick profits. The good news is that fees have been shrinking. According to BitInfoCharts, the average transaction fee, or Gas, in Ethereum on Sep 16 was $5. This is down 64 percent from the inexplicably high average of $14 posted on Sep 2 right when the amount of ETH locked under management stood at over $9 billion according to Etherscan.

Falling fees and a high network utilization, coupled with fundamental developments like the launch of yet another three-day testnet ahead of a potential launch of Eth2’s Phase 0—rumored to be at the end of the year, could explain the resilience of ETH prices. The testnet announced on Sep 14 by one of Ethereum Foundation’s core developers shows how, despite the pressure from the community, Vitalik and the team are leaning on caution. For a $150 billion juggernaut, it is vital that Phase 0 and staking remain bug-free. 

And their decision may have been advised by Cardano whose founder, Charles Hoskinson was one of the original six co-founders of Ethereum. If it is patience over rushed decisions to avert a catastrophic failure that could destroy investors, then Ethereum has been doing a good job. This could explain why the chart is reflecting their “patience”. Price action, for a lack of a better word, is drab. The Ethereum price is stuck in a $40 consolidation with caps at $350 as support and $390, the middle BB—or the 20-day moving average.

Figure 1: Ethereum Price Chart for Sep 17 by TradingView

Although the trend is bullish and ETH prices reacted from the 61.8 percent Fibonacci retracement line of the June to Sep 2020 trade range, there were capitulation fears early this month. Those have since been assuaged with positive fundamentals and specifically talks of early activation of the Beacon Mainnet.

Technically, a break above $400 can easily pump ETH price to $500 and to new 2020 highs. Conversely, further delays and disappointing news could trigger a sell-off below $300. If the ETH/USD price chart represents an efficient market, it is still best to proceed with caution. Despite the prospects of Eth2, the price gradient is still being negative, and falling Gas fees either point to a peaking market as enthusiasm around DeFi peaks, or Vitalik Buterin’s success in convincing users to use Layer-2 solutions (which is unlikely).

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Edmund McCormack
Tech industry veteran and blockchain technology investor. Simplifying cryptocurrency for almost a decade.

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