Upcoming Ethereum Upgrade – An Underestimated Factor in Influencing ETH Price?

The impact of Ethereum ’s governance decisions on the price of Ethereum is underestimated.

A recent study by three academics, Cesare Fracassi and Moazzam Khoja of the University of Texas at Austin and Fabian Schär of the University of Basel, sheds light on this relationship, specifically with regard to EIPs, or Ethereum Improvement Proposals.

An Ethereum Improvement Proposal is a research document that suggests new features or changes to the Ethereum blockchain as a guide for community consensus. A research paper by Cesare Fracassi et al. focused on Ethereum’s decision-making process and found an interesting trend. In the period before the final discussion of the core EIP, the price of Ethereum rose by about 18%, and rose by 12% relative to Bitcoin .

The paper, which has not yet undergone an academic peer review process, also examined the concentration of power in ethereum governance and found that developers and influencers hold significant sway over the EIP process.

The next major upgrade of Ethereum is Dencun, which is expected to reduce the transaction costs of Layer 2 and will be launched at the end of February. Ethereum developers will test Dencun on the Sepolia and Holesky test networks on January 30 and February 7.

Historical data

The study analyzed Ethereum’s price trends during the final discussion and approval of successful Core EIPs, looking at hourly price data from May 2016 to November 2023.

One of the most important findings is that in the weeks leading up to the last AllCoreDevs call before a major EIP, the Ethereum price increased by 18%.

The AllCoreDevs call is a regular meeting for Ethereum core developers to discuss EIPs and make decisions.

The surge in prices is seen as reflecting investors’ changing expectations about the likelihood of the proposal being approved and its potential impact on the token’s value.

To ensure accuracy of the analysis, the researchers focused on a specific period of 80 days, evenly divided between before and after these calls.

The study found that Ethereum’s price began to rise about 30 days before key discussions.

A clear pattern is also found when comparing Ethereum to Bitcoin.

In the 25 days before a core EIP is approved, ETH’s price typically rises by about 12% relative to Bitcoin, suggesting that ETH’s price does tend to rise significantly in anticipation of major changes to the Ethereum network.

This growth is particularly significant given the centralized governance structure, in which a small group holds significant influence over key decisions.

For example, an average of 10 validators per client implementation — each client is software running a different version of the ethereum protocol — are responsible for 80% of all software changes.

When comparing Ethereum’s performance to the S&P 500, its price action does not always align with stock market trends, suggesting that the factors influencing Ethereum are different from those driving the market.

For market participants, from retail investors to institutional traders, these insights may provide potentially valuable perspectives on how governance-related events can be key indicators for investment strategies.

For the ethereum community and developers, the data highlights the impact their decisions can have not only on the network’s technical trajectory, but also on its financial ecosystem.

The Dencun upgrade is still about a month away from finalization, and based on research data, Ethereum is likely to see a rebound.

Could ETH fall below $1,000?

Crypto trader and analyst Benjamin Cowen said ETH could fall further, even below $1,000, attributing the potential decline to factors related to the asset’s historical patterns.

Investors and traders have been closely watching the price of Ethereum in recent weeks since the United States approved a spot Bitcoin exchange-traded fund (ETF). After the approval of the Bitcoin spot ETF, Ethereum hit a new high of $2,720 this year, but immediately fell and consolidated.

Analyst Benjamin Cowen said that from a technical perspective, Ethereum has historically "tested" its major cycle lows about twice before entering a new bullish phase. Cowen specifically focused on 2015, 2016, and 2020, confirming that another low in 2022 has not yet been retested.

According to the trader, in the coming months, Ethereum will first show signs of decline in its Bitcoin bearish confluence (ETH/BTC), and then ETH/USD will follow suit.

He said: "So at some point I think Ethereum will fully test this low and fall back below $1,000. However, historical data also shows that it will not test it until ETH/BTC collapses. The data also shows that the collapse of ETH/BTC may be after January, as January is usually a good month for Ethereum."

At press time, Ethereum is trading at $2,310, down 14% from its yearly high of $2,700 on January 12.