Will Ethereum Continue Rally Ahead Of Constantinople Hard Fork?

“Clear eyes, full hearts, can’t lose.”  One of my favorite quotes from “Friday Night Lights” is a great way to describe the new year.  2018 was rough, brutal, and painful.  But with a new year comes new opportunities.  Crypto markets have started off strong during the first week of January.  Bitcoin gained nearly 5% on Sunday and now trades at approximately $4,060.  The broader crypto market has also followed suit as several notable coins have generated substantial gains.  Those coins include:

  • Ripple (XRP) with a 3% gain
  • Litecoin (LTC) with a 10% gain
  • Stellar (XLM) with a 5% gain
  • Ethereum (ETH) with a 2% gain

While the gains are a great way to bring in the new year, the market is still very cautious regarding the next step.  For cryptocurrencies to truly break out of the current bear market, they likely need to reach a market valuation of $230 billion.  Bitcoin would also need to trade at approximately $6,000.  So, based on today’s levels, there is still substantial work left to do.

Ethereum Hard Fork

Binance has just announced plans to support the Ethereum Constantinople Hard Fork which is currently scheduled for January 16th.  Traders need to be reminded that January 16 is the expectation, but nothing is set in stone.  When asked about the firmness of the data, Peter Szilagyi, an Ethereum core developer had this to say: “We can just mid-January, it doesn’t make a difference if we decide on a date or not.  We can always postpone.”

Ethereum has already had to delay the Constantinople upgrade once before after developers detected some errors on the testnet platform.  Given the complexity of the upgrade, it wouldn’t be a surprise if an additional delay was necessary.

Is the Hard Fork Necessary?

In a word, yes.  There are a few issues at play here.  The first is the “difficulty bomb.”  The difficulty bomb is the term used to indicate the increasing level of mining difficulty that results in an increased amount of time required to mine a new block on the Ethereum blockchain.  Block times are expected to begin increasing this month and could hit 30-second block times by May.

Some traders may be wondering why this “bomb” was put in place.  It’s a bit complex but essentially was designed as a deterrent for miners, who may opt to continue with Proof of Work (miners compete directly against each other), even as the blockchain transitions to Proof of Stake (where rewards are based on staking).  With the bomb in place, Ethereum will need to undergo regular network upgrades.

The Constantinople Upgrade

Constantinople is a system-wide upgrade that was enacted at the end of August, 2018.  The upgrade includes five different Ethereum improvement proposals (EIPs).  After the proposals are released on Ethereum, the blockchain will be permanently altered with new backwards-incompatible upgrades.

This essentially means that the network of computers that run Ethereum software must either update or continue running independently.

There is no doubt that hard forks have caused a great deal of squabbles in the past.  The most notable of which occurred with the Bitcoin Cash (BCH) hard fork.  Roger Ver, known as “Bitcoin Jesus” and the most prominent supporter of Bitcoin ABC, took a position in favor of the new software upgrade.  On the opposite side, Craig Wright, who claims to be Satoshi Nakamoto, was in favor of expanding the maximum block size from 32MB to 128MB.  ABC appears to have won that war.

Ethereum Rally Can Continue

Ethereum has had a monster rally over the past 30 days, gaining more than 80%.

So, while Ethereum miners are likely quite anxious as we approach the hard fork, the broader market appears to be quite fond of it.  I expect the rally to continue as we approach January 16th.

One risk is that if developers announce another delay.  A short delay probably wouldn’t have a major impact on price, but a delay of any meaningful length could lead to a selloff.  Traders looking to initiate a short-term trade may want to make use of stop limit trades.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.