Ethereum Hard Fork, Upward Price & Transitory Inverse Price Correlation with Bitcoin
Inverse price correlation between Ethereum and Bitcoin is only during short periods of time, they have a generally direct relationship in longer terms
I. Ethereum Development Stages
Ethereum Hard Fork Stages
Ethereum has 4 development stages: Frontier, Homestead, Metropolis and Serenity. Currently, it is during Metropolis, which is the third phase. Metropolis contains Byzantium and Constantinople. Byzantium is the one that happened recently on Oct 16. Constantinople has a date set in 2018 but the date has not been announced yet.
Future: Serenity
When Serenity is carried out, Ethereum will be more stabilized with Proof of Stake (PoS). The following are some exerpt about how the Proof of Stake will happen in Serenity. We made a chart so that it is easier for you to see the phases.
Serenity is a tough one, but good one. “For proof of stake, instead of solving puzzles, transactions are validated by “staking” one’s own funds as collateral. The funds are then frozen for a period of time while consensus on the validity of the transaction is reached. After consensus, the transaction is added to the blockchain. Funds are held in a frozen state for a period of time to prevent malicious attacks and add security. Once the funds are un-frozen, the staker(s) receives their original funds back as well as a “tip” in the form of transaction fees.” (Twistedx2) The benefit of Proof of Stake versus Proof of Work is that it is more environmental friendly as it significantly reduces electricity use. Proof of Stake are comprised of forgers versus miners. Instead of mining, forgers provide proof of stake of their fund to receive a transaction fee. “With Proof-of-Work, the miner may potentially own none of the digital currency he/she is mining. In Proof-of-Stake, forgers are always those who own the coins minted.” (BlockGeeks)
Compared to the fork of Byzantium, this switch to Proof-of-Stake is much harder. “ Switching the network from Proof of Work to Proof of Stake is going to require a substantial switch, a transition process potentially much like the one between Frontier and Homestead. Similar rollback measures may be required, although in all probability more sophisticated mechanisms will be deployed (e.g. running both mechanisms together, with Proof of Work dominant, and flagging any cases where Proof of Stake gives a different output.)” There are a lot of unknowns in the future plan, but we can provide a little info on Byzantium in the chart below.
Byzantium and Its Implications
Key things in the Byzantium updates that affect the price are:
+“zk-SNARKs” for anonymous transactions.
+Gas calculation that prevents wallets overcharge users.
+Enhanced security.
-Difficulty-Bomb that makes mining more difficult.
What’s more
-Closing of Chinese exchanges
-Fear of a dropping price and others
Ethereum Hard Fork completed successfully. While with an Ethereum Ice Age scheme that incentivizes users to move to the new blockchain, more and more media exposure and more users are joining which will drive up the intrinsic value of Ethereum.
II. Price Implications
Correlation of Bitcoin Price and Google searches
In Jemima Kelly’s article “Bitcoin Rockets Above $5000 to All Time High”, Jemima mentioned an interesting research. Based on SEMrush, a search engine data analytics firm, bitcoin Price and Google Searches has a 91 percent correlation, “suggesting that all news — whether negative or positive — drives up demand, even if bad news can have a temporary negative effect”.
Ethereum and Bitcoin Price Have Transitory Inverse Relationship
Although there are some articles that observe Ethereum and Bitcoin price have an inverse relationship, I do not believe this holds true for a long term as most of these articles posted price charts for one hour or maximum one day. See below:
Search results Are Not Directly Relevant to Price
However, I did found an article that sounds similar to the statement of inverse price relationship. That is, actually, inverse search relationship. You can find the article below on inverse relationship between Bitcoin and Ethereum in Google Search results with the price relationship being inconclusive.See below for the article on inverse search relationship.
< https://news.bitcoin.com/search-volumes-for-bitcoin-and-ethereum-enter-inverse-correlation/>
With Kelly’s article’s finding: “all news-whether negative or positive — drives up demand” (for bitcoin) could mean that searches do not determine price directly though could cause an effect on the price positively most of the time, and really bad news or no searching would actually be correlated to negative effects. With this search and price relationship potentially applies to Ethereum as well, the search results could mean a similar result in Ethereum.
Similar Trends Between Ethereum and Bitcoin In Action
There are plenty of long term time periods where the relationship between Ethereum and Bitcoin go hand in hand. Please find my article on Double Dip opportunity in the below link, where the price of Bitcoin and Ethereum (in a comment) is illustrated to have similar trends over 3 months.
Supporting Opinions
In Kelly’s article, it also mentioned that other cryptocurrencies “whose prices tend to be highly correlated to bitcoin” also went very high. This type of impact to rise based on rally of bitcoin applies to Ethereum as well according to many other experts.
Ethereumprice today said “So As Ethereum went through a successful upgrade that will definitely enhance its performance and intrinsic value, some might be blinded by all the noise in the Crypto market in general and around Ethereum. We are still maintaining our positive outlook for Ethereum price and believe we will be seeing a Bullish move for Ether. The fact that Ether is trading in such a tight range following the fork means that there is an important confidence in the value of Ether and that it is probably coiling up for a big move. Very likely upwards and the Catalyst could be released in the soon to be held Ethereum developers conference Devcon 3.”
Iyer on Profit Confidential stated that “ Other than Bitcoin, Ethereum is probably the most insulated from geographical risk. Other cryptocurrencies have as much as 70% of their trading volumes sourced from one country, which means that a regulatory shift in that nation would devastate the currency’s liquidity. As such, we hold steady on our $1,000 Ethereum price forecast for 2018.”
References
BlockGeeks. “Proof of Work vs Proof of Stake: Basic Mining Guide” Oct 24, 2017. <https://blockgeeks.com/guides/proof-of-work-vs-proof-of-stake/>
“Ethereum Price After a Smooth and Successful Byzantium Fork.” Ethereum Price Today. Oct 17, 2017 <http://ethereumprice.today/price-predictions/ethereum-price-after-byzantium-fork/>
Iyer, Gaurav. “Daily Ethereum Price Forecast: ETH Price Slashed by 4% on Monday.” ProfitConfidential. Oct 23, 2017. <https://www.profitconfidential.com/cryptocurrency/ethereum/ethereum-price-forecast-eth-price-slashed-4-monday/>
Kelly, Jemima. “Bitcoin Rockets Above $5000 to All Time High”, MSN.com Oct 12, 2017 <http://www.msn.com/en-us/money/markets/bitcoin-trades-above-dollar5000-for-first-time-ever/ar-AAtknoH?OCID=ansmsnnews11>
Twistedx2. “What does Ethereum’s Proof of Stake algorithm mean for miners?” June 26, 2017. <https://www.crypto-news.net/what-does-ethereums-proof-of-stake-algorithm-mean-for-miners/>
