Crypto Weekly: From London to Germany
Summary: The London update is one step closer to launch on the Ethereum network after being deployed on a testnet. The update will make transaction fees more predictable and burn a part of the fee, to the frustration of miners. From London to a country nearby, a German law comes into effect enabling special funds to invest up to 20% of their asset under management in cryptocurrencies.
The London update is moving closer on Ethereum
The highly anticipated London update is moving closer to launch on Ethereum. The update launched on a testnet on June 24, getting ready to fully launch on the active Ethereum network later in July. The update contains EIP 1559, which dissimilar sides of the community either love or hate. EIP 1559 changes the way users pay transaction fees on the network, making the fee sizes more predictable. Essentially, from being solely based on an auction the fees will in the future be based on a fixed fee with the option to tip miners.
At the same time, part of the transaction fees paid will be burned, limiting the inflation rate for Ethereum. It is estimated that the update would have burned around 2.9mn ETH the past year if implemented, with the total ETH supply stretching to around 116.5mn ETH. As transaction fees are compensation paid to miners in return for confirming transactions, miners are generally not keen on the idea of burning a part of the fee.
Our point of view has not changed; we are still rather positive about the update, sharing the view of most users and holders. Simply, the London update makes Ethereum more user-friendly to interact with as the fees become more predictable. This is especially essential for the growing demand for decentralized finance protocols. Additionally, not only is the burning mechanism good for holders as the inflation rate will be reduced, but it also reduces the impact miners have on the market by compensating them less Ether, thus limiting potential sell pressure from them.
The update acts as a good transition to ETH 2.0 and the world of staking, where miners are completely unnecessary as newly issued Ether and transaction fees will be compensated to holders. The London update also puts pressure on the store-of-value narrative in regards to Bitcoin as the Ethereum inflation will likely fall to the level of Bitcoin, while the Ethereum network is having a higher demand for transactions. With ETH 2.0 expected to be fully implemented in late 2022, the inflation for Ethereum holders will basically fall to zero as they get the newly issued Ether, fundamentally doubling down the pressure on the store-of-value narrative for Bitcoin.
German law allows a potential $415B inflow into crypto
A new German law which came into effect last week allows special funds to invest up to 20% of their asset under management in cryptocurrencies. Special funds are the most popular institutional investment fund in Germany, counting around 4,000 funds. According to CoinDesk, in the case that every special fund would invest 20% of their portfolio in cryptocurrencies, the crypto-market would see an inflow equal to $415bn. Though the potential inflow is fairly optimistic, it shows that German regulators are comfortable in letting German special funds invest in cryptocurrencies. We are often talking about regulation and government intervention being one of the largest risks of the crypto-market. In this case, it appears that it also works the other way around with regulation potentially impacting the market positively.
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