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Speculation: How will PoS affect ETH price action?

Obviously nobody knows for sure, but I would like to pose the question: how will the transition to proof-of-stake affect ETH price action? Some related thoughts:

– Price is a function of supply and demand

– Demand is generated by transaction fees, investment activity, and ETH-based-product purchases (i.e. NFT)

– Supply is driven by the Etherium network fundamentals, and some changes to supply mechanics are coming with EIP-1559

Now, I think we all know that proof-of-stake is intended to reduce the cost of transaction fees (“gas”) but my related question is, how much of today’s demand for ETH is due to transaction fees? Related, if ETH users no longer require much ETH for payment of transaction fees, how will that affect demand for ETH?

I would love to hear some thoughts on this topic from the community, what do you guys think?

What do you think?

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11 Comments

  1. Because they are doing a quick merge to PoS, they are to my understanding not going to initially implement withdrawals for stakers. What that means is after EIP-1559 fees are burned, and after initial switch to PoS, miners are gone and newly created eth cannot be withdrawn. That creates a hyper-deflationary situation where fees will be being burned but NO new eth or even transaction tips will be available to be sold into the market. It’s going to be insane demand with nothing to meet the demand but existing stock. Literally $billions in eth will be being burned (PoS doesn’t lower fees) with no new eth coming on the market at all. That’s never happened before. It might create a feedback loop where the rising demand raises prices and fees, which burns even more eth, driving demand up even more. If we don’t hit $10,000 during that period I’ll be surprised.

  2. When PoS we get the marketing money which we never had. We become the green cryptocurrency. We get all the fucking media to shill ethereum. And we also become deflationary. Talk about 20.000 now is like when 5 years ago they talked about 100.

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  3. As soon as I understood what staking was, I immediately understood it was going to become the world’s next major passive income stream akin to owning a rental property or dividend-bearing stocks. In fact, it’s probably better because staking has negligible depreciation or maintenance costs, so it can totally afford to have significant risk or lower returns.

    When this happens, any cryptocurrency with staking functionality will be quite valuable.

    The question is “how long will it take for the market to understand this?” My guess is this won’t happen soon. COVID has put most major businesses into survival mode rather than profit-hunting, and it isn’t until that flips and people are open to innovation and investment opportunity that you will really see staking take off.

    This is why I think Ether in particular will have a double-spike bull run.

    As to specific price predictions…I’ve made my opinion clear that I think price predictions are something between difficult and impossible. The majority of price predictions I’ve seen are based on simple–almost childish–projections. You almost never see price predictions which give you a confidence interval or which handle a wide variety of factors.

    Well, I will right now.

    I have absolutely no clue how EIP 1559 and the upcoming fork will affect the price other than “it’ll go up unless the Ethereum Foundation majorly goofs.” However, I generally think that Ether will enter this timeframe between 3K and 5K and leave somewhere between 5K and 10K.

    Much of the rest of this depends on how much life the Bitcoin bull run has left in it and when the inflation from the Federal Reserve printing $9 Trillion USD kicks in and affects consumer prices. Also, for the sake of simplicity, I’m going to be talking in terms of *2019 USD.* If hyperinflation does happen, then measuring your ETH with dollars makes no sense, but we need to have a known quantity to measure it in. Hence I will use 2019 USD.

    * If ETH leaves the Berlin Hardfork on the low end of those figures, none of those other events happen, and the bull run stalls out quickly, Ether will likely peak out around 8K in August to October. The second peak will probably also be weaker than the first, floating around 5K-6K.

    * If one or two of those happen, ETH will see its first peak in the 13K-15K range in December or January. The second peak will probably have almost identical power.

    * If the stars line up perfectly for ETH, then I am guessing the first peak will be in January to March of 2022 and it will be something over 20K. The second peak will be something about a year later, and the second peak would be the supercycle. A 100K ETH after a supercycle is unlikely, but not completely unreasonable.

  4. First POS is not intended to reduce transaction fees, l2 and sharding is and both of those could be done on pow if we wanted to. The point of proof of stake is to spend much less for security than we pay for miners. Eths price will go up as a result of eip1559 and proof of stake all things being equal. This is almost true by definition eip1559 will make ether more scarce by burning it and POS will reduce the amount of eth we pay in issuance for security so it is two different things reducing the supply without reducing the demand (in fact you could say the demand is increased by POS because people will want validators wheras miner are more likely to sell).

  5. It seems to me that the crypto market isn’t tied very closely to network performance.

    In a rational market, I would expect a successful transition to boost the coin as it removes a potential risk(failed transition). But knowing this market, I expect it will have minimal impact.

  6. Staking will become a cornerstone of finance in the 21st century. The fiat money printing press has been running nonstop in the US and around the world, a process that will only further accelerate ironically thanks to blockchain technology, with China’s digital RMB and the federal reserve now preparing for the digital USD, so that central banks everywhere can print money with even more reckless abandon without even needing physical printing machines anymore.

    So the choice for the multi trillion dollars fixed income industry is either hold fiat currency reserve with CDs and bonds and steadily lose money with yields below inflation, or move to ethers where not only do you earn much higher passive returns with staking, but also see your principal appreciate over time thanks to the deflationary nature of ethereum monetary system post 1559 and pos merger. The ever appreciating token price in turn compounds your returns from staking. Eth is the perpetual motion money making machine that wall st has been dreaming of.

    Staking will soon become the de facto instrument for wall st to earn risk free inflation adjusted returns, the holy grail of wealth management.

    And for those investors that want even higher returns, there are plenty of defi investment and lending options they can explore, by taking on risks of course, but probably still offer much better risk adjusted returns than wall st inventions like structured products, derivatives, cds, clo etc.

    Btc may be digital gold, but gold doesn’t produce any income.

    Eth is the ultimate instrument of fintech alchemy.

  7. How is demand “generated” by transaction fees, seems it should be the inverse? Meaning, network usage/demand generates fees. And how does PoS lower gas costs? The idea behind lowers fees is that it lowers entry barriers for more users to make smaller transactions. For example, if you lower fees by 50% you might attract 100% more users because it is now cheaper/ more convenient for them to interact w/the network.

  8. So pos isn’t going to reduce transaction costs? So my 100 bucks of tokens Locked in a smart contract that cost 110 dollars in gas to withdraw is going to be stuck there forever?

Cryptocurrency and Blockchain: ‘Tis The Future | by Ben Messika | The Block

Withdraw from contract exact amount of ether