Ethereum is about to undergo a very significant upgrade.
The upgrade is called London.
What makes London particularly noteworthy is the fact it introduces rent control on gas fees via Ethereum Improvement Proposal (EIP) number 1559.
The result is ETH tokens can be burned. Meaning the adjustment to ETH’s monetary policy results in the asset becoming scarcer.
It also means for now on ETH's price is more closely linked to the network's transaction volume. More transaction volume -> more ETH likely to be burned.
This in turn makes the asset more reflexive on a fundamental level, which is to say price will become more responsive to the usage of the network.
Now, historically upgrades similar to this are thought to be a catalyst for price. And with the London upgrade being such an important event to ETH's economics, we wanted to dive into prior upgrades to see how price responded in the days that follow.
The idea here is to see how ETH’s price might unfold in the months that follow. Let’s check it out…
The Upgrades
Ethereum has had seven upgrades over the last five years.
The first upgrade was Tangerine Whistle. It happened on October 18, 2016. ETH’s price at the time was $12.5.
The result for price was a net negative in the 30, 60, and 90 days that followed. It broke even after 120 days. You can see for yourself in the chart below.
Ethereum also performed worse in the days that followed compared to bitcoin.
The second upgrade was Spurious Dragon.
It happened on November 23rd, 2016. ETH’s price at the time was $10.
The result for price was very favorable on the longer timeframe. I would caution making a correlation to the upgrade here as the entire market experienced growth around this longer timeframe.
Here is how it performed against bitcoin in the days that followed.
The third upgrade was Byzantium.
It happened on October 16th, 2017. ETH’s price at the time was $333.
The result for price was again favorable. But similar to the last example, the entire market was experiencing growth. I would caution leaning on the upgrade as being a catalyst to price here.
In fact, over this time period Ethereum lost ground to bitcoin as well.
The fourth upgrade was Constantinople.
It happened on March 1st, 2019. ETH’s price at the time was $136.
Market again grew in tandem here with the April Fool’s pump in 2019 off market lows. The entire market roared from that moment. Again, I’d caution drawing any sort of correlation here as Ethereum lost ground to bitcoin based upon the ETH/BTC pairing.
The fifth upgrade was Istanbul.
It happened on December 8th, 2019. ETH’s price at the time was $151.
The result for price was a bit more favorable here over the ensuing 60 days. However, again the market as a whole climbed in unison.
The sixth upgrade was Muir Glacier.
It happened on January 1st, 2020. ETH’s price at the time was $130.
The fact Istanbul and Muir Glacier all happened in rapid succession might have been very positive for price. And it might be in part responsible for why the market as a whole grew in the ensuing 45 days.
In fact from the start of 2020 to February 18, 2020 Ethereum gained 59% over bitcoin. I’d say a lot of this had to do with the two upgrades happening in rapid succession.
Here is the chart of Ethereum against bitcoin reflecting the strong price action in the weeks that followed.
The sixth upgrade was Berlin Hardfork.
It happened on April 15th, 2021. ETH’s price at the time was $2,517.
The result for price was great over the few weeks that followed. Shortly after Ethereum got caught up in the selloff experience by the market as a whole.
It should also be noted how strong ETH’s price was in the days that followed compared to bitcoin. In the 30 days that followed ETH gained 106% over BTC.
And now here we are with London, which is scheduled to happen on August 5th.
London Expectation
The impact of Ethereum’s upgrades on the price of ETH tends to be heavily correlated with the market as a whole.
While the relationship of ETH to USD might not be great based upon history with average returns being...
5.1% in 30 days that followed an upgrade
28.8% in 60 days
64.4% in 90 days
And since Tangerine the monthly average return for ETH is 17.8%, these returns don’t really stand out.
However, the strength in price against the bellwether asset bitcoin IS interesting. And lately it is becoming more noticeable with the more recent upgrades.
The ETH/BTC pairing is the one to watch in the coming weeks. Especially as it tests its upper trendline in the days leading up to it.
One last thing to note is ETH’s price has had a great run up in the week leading up to London. It is even performing better than bitcoin over this stretch.
While at first glance a lot of the gains we typically see with Ethereum upgrades might have already played out, I suspect there is still room.
This is especially true when we lean on our internal signals, which are hinting at bullishness for ETH.
London is definitely a great catalyst event to watch unfold in the coming days to weeks.
Never a dull moment in crypto…
Your Pulse on Crypto,
Ben Lilly
P.S. - My apologies for not writing lately. Our team and partners are working very hard to roll out ChainPulse. We can’t wait to show you what we have to offer! In the meantime my essays will be very sporadic.
Your updates are very appreciate 👍
Thank you for the info. Can alt-coins be deemed securities one day? Seems like a lot of the tokens fit the criteria for the Howey rule. Just a thought... maybe ETH gets a pass? I don't know just thinking out loud and different possibilities... A little suspicious that alts are mostly traded through BTC... maybe distractions to get more BTC? Maybe.... maybe not... but be aware