Ethereum (CCC:ETH-USD), like other cryptocurrencies, has been in something of a bear market for the past several months. It peaked at $4,178 on May 10 and has been generally falling ever since.
As of July 19, ETH crypto was at $1,820 per token. In fact, it has actually climbed from a prior trough at $1,813 on June 24. But never mind, since this is probably just a prelude to a comeback in the fall, as is often the case.
Actually, ETH is still positive for the year. It ended December at $730.37. So, at $1,820 on July 19 it was still up 149% year-to-date.
And don’t even talk about its year-over-year performance. That works out to about a 5 times (488%) gain in one year. So, most Ethereum owners who have owned ETH for more than 6 months are generally in the money.
The EIP 1559 Update
Another major catalyst for Ethereum is the upcoming Ethereum Improvement Proposal (EIP) 1559 update. I wrote about this last month. I described how EIP 1559 will lower “gas” or transaction costs for ETH trades, swaps, and NFT (non-fungible tokens) purchases, etc.
A portion of the transaction fees, normally paid to the Ethereum miners, will be diverted. This portion, called the base fee, paid for in ETH tokens will then be “burned.” This will reduce the total supply of ETH tokens. However, the scarcity effect is not yet clear. Some estimate it at about 20% of the total fees. Others estimate that it will be 4%.
But either way, it still results in a lower number of ETH tokens outstanding, sort of the way stock buybacks work in the equity market. Over time, that reduction in supply will have a positive effect on the price of Ethereum. This may help cover the lower fees that Ethereum miners will receive.
I used an analogy in my previous article to help understand how the upgrade will improve things.
The way the Ethereum platform works now is like driving up to a gas station pump and entering in a price you believe will pay for the gas. The price of the gas is set, but there is a non-set commission, which you have to estimate. If you low-ball the transaction fees you may have to wait 30 minutes to get gas pumped into your car.
Now, with EIP 1559, all Ethereum users will have the same gas price and the same transaction fee. Now with EIP 1559, it’s like buying online. Either pay the shipping or handling fee or don’t buy the product.
What to Do With ETH Crypto
Robinhood recently reported in its SEC IPO filing documents that it expects that crypto trading will be lower in Q3. This was compared to the elevated levels it had in Q1. But truthfully, there is no real basis for this prediction. They don’t know what will happen. All it will take is some sort of spark or reignition of investor sentiment in digital assets.
For example, it is not uncommon for interest in cryptos to reawaken in the fall or even at the end of the year. I suspect that will happen again with both Bitcoin (CCC:BTC-USD) and Ethereum. Patient investors will use this period of consolidation to average cost down into the ETH crypto.
And that is not to say that Ethereum might not fall further. This is very likely especially late in the year if they want to realize losses for tax purposes. But for now, most digital asset investors will probably look for opportunities to increase their stake at cheaper prices.
On the date of publication, Mark R. Hake held a long position in Bitcoin and Ethereum but not any other security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.