If scarcity is a driver of price, then Ether hodlers should be partying right now. That is, if they are determined to hold their ETH come hell or high water.
Thanks to the DeFi craze, a familiar problem has reared its ugly head. With more people vying to get into the next hot token, DeFi has created an unsurprising transaction fee problem.
We’ve Been Here Before…
As much as Ethereum users are complaining on Twitter, this should come as no surprise to anyone. We’ve been here before. Remember the 2017 ICO craze that drove transaction prices to what was then an all-time high of about $3.1 USD? Well, that has been shattered several times over already.
Yesterday, on September 1st, 2020, a new all-time high was established. A single transaction cost around $13 USD according to ycharts.com. The median transaction fee is also moving higher, as DeFi continues to capture the imagination of investors.
The DeFi Transaction Fee Problem as an Indicator?
If history can somehow serve as an indicator of what the future might have in stock for us, then this new all-time high might be a signal to take DeFi profits and get out of the market.
ETH prices fell sharply right after transactions hit all-time highs in January and then May/June 2018:
- ETH prices hit an all-time high on January 2018 reaching $1,360 USD, coinciding with an all-time high $3.1 USD transaction fee
- After the January 2018 crash, ETH rallied again – by then the ICO craze was declining precipitously
- On May 2018 ETH peaked at $750 USD while transaction fees hit what was then a new all-time high of $3.2 USD
- It took ETH a full 2 years to break the $400 USD mark again after
- Now, ETH demand is high again as DeFi is creating a transaction problem again
The Other Side of the Coin
Anyone can look at these numbers and conclude that we are on a path to even higher transaction fees. That is because ETH is still way below its all-time high, and DeFi is still defying logic.
The issue now is that the ecosystem is way more complex now than it was then. It is possible to launch DeFi products on other chains like EOS. Ethereum faces some competition. But if demand for DeFi products on that blockchain is still growing, wouldn’t it make sense for investors to move into ETH?
It is possible for ETH prices to keep on rising thanks to DeFi. Transaction fee prices might also keep on rising. In that case it would be great to see how people in the space continue to call out Ethereum and its founder, Vitalik Buterin.
DeFi Transaction Fee Problems Show Ethereum’s True Colors
After all, Ethereum proponents criticized Bitcoin for its lack of scalability. A few ICOs later, we are noticing that those Ethereum 2.0 promises are not enough to deliver on scalability. It is now Ethereum transactions that take hours if not days to confirm.
In the meantime:
- Bitcoin scaled through its layer-2 solution: The Lightning Network
- Other protocols like IOTA, which offer fee-less transactions and advanced scalability models, have had setbacks
- Those protocols which do whatever Ethereum does, are also hosting DeFi products
Enjoy the Scarcity that DeFi Generates While it Lasts
Nevertheless, Ethereum supporters should be thrilled. The cryptocurrency they are hodling – which was designed as fuel to feed smart contracts – is doing exactly what it was designed to do.
ETH prices are trending higher on the back of the astronomical rise of DeFi. That fee problem that we were all familiar with from the ICO era, is still there, and it is still delivering the goods for miners who are going to be gone once Ethereum 2.0 is launched.
By then, the DeFi transaction problem will become a thing of the past and Ethereum supporters will probably be waiting for the next big bubble to get them out of the rut.
*This post does not constitute investment advice of any kind. Neither the author nor HodlHard are liable for any decisions you make based on the information above.