Ethereum 2.0 is ready to go, how will the market perform in the next three days | Research report

Author | Hash Party - LucyCheng

Article word count: about 4200 words Reading time: about 4 minutes

1. Overview

Driven by these positive news and the surge in Bitcoin prices, Ethereum prices have been rising since November. At the same time, on-chain and off-chain data, including non-zero addresses, deposit contract pledges, large transfer transactions, and daily transaction volumes, all show a relatively obvious growth trend. In this article, Hashipai will analyze various data indicators of Ethereum and observe what preparations the field has made to welcome ETH 2.0.

2. The price broke through $600, setting a new high in 29 months

Ethereum price fluctuations since 2017 (data source: Coinmarketcap)

In November 2020, under the influence of the US election, institutional strong holdings, and the accelerated progress of Ethereum 2.0, the cryptocurrency market was hot. This week, Bitcoin once again broke through $19,000 and approached its historical high of $20,000. At the same time, other competing currencies also showed a strong upward trend, achieving different degrees of price growth. As one of the mainstream currencies, Ethereum rose by more than 10 percentage points in seven days, second only to XRP (91.47%), ADA (25.03%) and BCH (15.11%).

According to data from Coinmarketcap, Ethereum broke through the $600 mark on November 24, setting a new high in 29 months. Even though the current price has fallen slightly, it remains above $500, with a cumulative increase of nearly 30% this month, which is better than the cumulative growth level of Bitcoin prices this month.

3. 19-day pledge exceeded 520,000, and ETH reached the deposit threshold as expected

ETH2.0 deposit contract address balance and Ethereum price growth (data source: OKLink, Coinmarketcap)

It should be noted that before November 23, the Ethereum 2.0 deposit address received only 286,528 ETH, and the relevant pledge progress was less than half of the minimum activation threshold. Faced with such a slow pledge progress, the decentralized prediction platform Ploymarket gave a rather negative prediction data on November 18, and 61% of investment forecasters in the relevant betting market believed that ETH 2.0 would not be launched as scheduled on December 1. On the same day, Danny Ryan, the head of the Ethereum 2.0 project, even publicly stated that if necessary, the minimum threshold of the deposit contract might be appropriately lowered to ensure the smooth launch of the ETH 2.0 genesis block.

However, as the final staking deadline approaches and the price of Ethereum continues to rise, the market's expectations for 2.0 are also rising, and the staked tokens flowing into the deposit contract have begun to surge. After reaching the minimum starting threshold at 10:20 am on November 24th, Beijing time, the balance of the contract address is still rising, and the current amount of ETH staked has exceeded 700,000.

Growth of ETH2.0 deposit contract address balance (data source: OKLink)

In addition, from the chart obtained from OKLink statistics, it can be seen that the balance growth process of the ETH 2.0 deposit contract address can be roughly divided into three stages, namely November 5th to November 14th, when the daily deposit volume was only a few thousand coins, November 15th to November 19th, when the daily growth rate increased to about 10%, and November 20th to November 24th, when the daily inflow reached tens of thousands or even hundreds of thousands of coins.

The growth of addresses holding approximately 32 ETH from November 5 to November 26 (data source: Glassnode)

Since ETH 2.0 currently only has the deposit function, the ETH pledged in the deposit contract needs to be locked for at least one to two years, waiting for the official launch of the beacon chain Phase 2, before it can resume circulation. For this reason, there are not many users who resolutely participate in deposit staking in the first phase, and the growth of addresses holding at least 32 ETH has also slightly decreased compared to early November (32ETH is the minimum threshold for participating in Ethereum 2.0 to run a validator node). In order to dispel users' doubts, Vitalik Buterin took the lead in depositing his own 3,200 ETH; however, this move did not work, and during this stage, most users in the market still held a cautious attitude towards participating in 2.0 deposit staking.

One of the addresses that injected a large amount of funds into the ETH 2.0 deposit contract (data source: Etherscan)

This situation lasted until around November 14th, and later, with the rise in Ethereum prices and the addition of whale addresses, the daily growth rate of the balance of its contract address gradually increased to more than 10%. From the transfer information tracked on the blockchain information website Etherscan, it can be seen that from November 14th to November 20th, nearly 30,000 Ethereums flowed into the deposit contract from multiple whale addresses starting with 0x62, 0x38, 0xdD, etc., accounting for more than half of the deposits in the contract address during this period.

Although the participation of the whale address has accelerated the process of deposit pledge, as of November 20, the deposit contract address received only 120,000 ETH, less than a quarter of the minimum standard of 524,288 ETH. If the growth rate at that time was maintained, the deposit contract would not reach the minimum pledge threshold until at least December 6. However, this did not happen. Starting from November 21, the balance of the Ethereum deposit contract address showed an exponential growth trend, enabling it to complete nearly three-quarters of the remaining deposit progress before the last valid pledge deadline. Judging from the 131,300 ETH deposit contract locked volume given by Swiss crypto asset dealer Bitcoin Suisse, we have reason to speculate that the ETH flowing into the deposit contract in the third phase mainly came from institutional supporters.

4. Large transfers are frequent, and more than 10% of the mortgage funds come from whale addresses

Basic information on large Ethereum transfers in November (data source: Whalealert)

On the other hand, according to the statistics of Whalealert, it can be seen that in the process of the growth of the balance of the ETH 2.0 deposit contract address, the growth rate began to accelerate, and the number of large transfer transactions on the chain and the related transfer amounts increased significantly. On November 21, when 50,000 ETH was deposited in a single day, there were more than 15 large transfer transactions between addresses with an amount of up to 60,000 ETH; and on November 14, when the daily ETH 2.0 pledge deposit increased from thousands to tens of thousands, there were about 5 large transfer transactions between addresses with an amount of 50,000 ETH.

Number of Ethereum on-chain transactions during November (data source: Coin Metrics)

After successfully reaching the target, large transfer transactions on the Ethereum network began to decrease this year. At the same time, the number of transactions on the chain in 24 hours also turned to decline, returning to the level of early November. Not only that, after reaching the minimum activation threshold of 2.0, the transaction type of large transfers on the Ethereum chain gradually changed from transfers between addresses and exchange expenditures to large exchange deposit transfers. In addition, the amount of Ethereum held by exchanges showed an inflow in the past seven days, and the balance increased by more than 270,000 Ethereum within the week (data source: ViewBase).

5. Secondary market transactions are hot, and mining market computing power is stagnant

Changes in Ethereum prices and transaction volumes in November (data source: Coinmarketcap)

According to the indicators released by crypto analysis company Into TheBlock, 499,000 addresses purchased a total of 6.43 million ETH between $531 and $547. According to the data provided by Coinmarketcap, the average daily transaction volume of Ethereum from November 21 to November 25 was $6.564 billion, an increase of more than 20 percentage points from the previous month; until November 26, when the price of ETH fell below $520, its 24-hour transaction volume dropped to around $580,000, but compared with the beginning of the month, it has also shown a transaction volume growth of more than 30%.

SOPR ratio developed by Renato Shirakashi (data source: Glassnode)

Although the price of Ethereum has fallen sharply in the past two days following Bitcoin, other market data still show a relatively optimistic sentiment in the market. For example, SOPR (Expenditure/Output Profit Ratio), an indicator that can be used to measure people's emotions and behaviors, is currently still maintained at a level above 1, indicating that the market as a whole is still profitable. It is worth mentioning that the advancement of the ETH 2.0 process has attracted more small investors to enter the market to a certain extent. By comparing the growth of addresses with ETH holdings greater than 0.1 and 0.01, it is not difficult to find that since November 15, the number of addresses with a balance greater than 0.01 and less than 0.1 has increased significantly, which indirectly indicates that there are many new small investors among the 1.3 million non-zero addresses that have increased this month.

The growth of addresses holding Ethereum coins greater than 0.01 and 0.1 in the past three months (data source: Glassnode)

Not only that, the mining income and mining difficulty of Ethereum also increased this month. According to data from BitinfoCharts, the current Ethereum mining difficulty is 3.5185 PH, a two-year high, and gradually approaching the historical high. However, as the mining difficulty increases, the growth rate of Ethereum's total network computing power has begun to slow down. The cumulative computing power growth in November was only 3.3%, and the growth rate fell by more than 49 percentage points month-on-month.

Ethereum mining revenue over the years (data source: BitinfoCharts)

6. The community has a different consensus, and the market only focuses on price trends

Baidu search index of Ethereum in the past year (data source: Baidu Index)

For institutional investors and whale users who are optimistic about Ethereum 2.0, participating in the deposit pledge in Phase 0 is a good long-term investment. Driven by them, more small investors have begun to relax their vigilance and enter the market one after another, trying to become the first beneficiaries of Ethereum's transition to the PoS mechanism. Perhaps for these entrants, what ETH 2.0 is and how its specific route planning is are concepts that have only recently been included in the scope of understanding, but for old miners and community participants, this is a long and controversial topic.

So far, the debate in the community about the future of ETH miners and whether the Ethereum network should risk turning to PoS for scalability remains unresolved. At the same time, there are doubts about whether Phase 2 can be launched as scheduled and whether the staked tokens in Phase 0 can be restored to circulation. However, these differences do not seem to cool the market's enthusiasm for Ethereum 2.0. The field still has high expectations for the beacon chain that will be launched soon. Currently, 746,304 ETHs are involved in Phase 0 deposits and pledges, which is 1.42 times the original target; and the number of verification nodes supporting 2.0 has risen to 18,752, and continues to increase at a rate of about 5%.

VII. Conclusion

However, this state may not last long. Currently, the ETH that is optimistic about and participates in Phase 0 deposits and pledges accounts for less than 2% of the total circulation in the market. Moreover, the launch of the beacon chain genesis block on December 1 is only the beginning of Ethereum 2.0. The real proof of the feasibility of the network will have to wait until the subsequent sharding technology is launched and the pledged ETH is recirculated. Faced with the Ethereum 2.0 process, which is seriously delayed and has many unknowns in technology, there are many pessimistic voices in the community; and for retail investors who follow the trend, patience may gradually wear out in the years-long updates.