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.
Quarterly Outlook Q1 2022
Quarterly Outlook Q1 2022: Fuelling the Energy Crisis
- The green transformation is fuelling the energy crisis. Is it time to base our energy future on reality not fantasy?
Energy crisis could turn energy stocks into secular winnerWith long-term expected returns for the global energy sector close to 10%, we look at 40 stocks that could be set to cash in.
Commodities supported by greenflation and tight supplyThe commodity sector recorded its best year since 2000 in 2021. Will the good times will keep rolling in 2022? Ole Hansen thinks so.
The bond bear market will not spare anyoneInvestors will need to prepare for the pain of a bond bear market in 2022. But are there opportunities out there, too?
Mean reversion for big 2021 moves and lots of volatilityDon't expect the Japanese yen or Chinese renminbi to stay at their overstretched valuations for long. Get the FX Outlook now.
The future in energy-intensive proof-of-work looks dimIn the midst of a global energy crisis, electricity-guzzling Bitcoin and Ethereum are set to feel the heat from politicians and investors.
Australian equities poised to benefit from the energy crisisThere may be an energy crisis, but that's fuelling a charge in the ASX. FInd out which stocks could be burning hot this quarter.
The EU’s unwise energy policyThe EU's energy crisis is one of the main drivers of inflation. Is there any relief around the corner, or is the situation critical?