Ethereum peaked as high as $ 1.1k after a 30% advance on Sunday, a level not seen since February 2018.
The market has since cooled, back to just below the USD 1,000 level at the time of writing. But after breaking through the $ 1,000 psychological resistance, expectations of a continuation are raised.
Head of Business Development at Luno exchange, Vijay Ayyarattributed the move to Bitcoin’s epic shape. He said investors are cycling BTC profits back to other tokens, with Ethereum being the main beneficiary.
“What we are seeing is the standard move of the crypto markets from Bitcoin to the Altcoin market led by Ether. This rotation usually occurs when Bitcoin has a major rally and investors are rotating profits “into other digital currencies.”
Source: ETHUSDT on TradingView.com
The second largest cryptocurrency by market cap has outperformed Bitcoin in the past 12 months. It is up more than 600%, from Bitcoin’s 300% gain in the same period.
However, as Ethereum holders are celebrating the price action, the matter is high gas costs, which was last known during the summer of DeFi, is re-emerging.
Tushar Jain, the Managing Partner at Multicoin Capital, said a transaction with Uniswap currently costs $ 100. He went on to say that this situation leads to ‘antenna network effects’. All in all, Jain believes the Ethereum network is now unable to adequately support DeFi usage.
“Ethereum suffers from anti-network effects. Each new user makes the system less useful to other users by displacing them. For example, it currently costs ~ $ 100 in gas to trade on Uniswap. Just sending some ETH costs ~ $ 10. DeFi has outgrown it Ethereum. “
Gas costs are rising on Ethereum
Gas costs are an essential part of the Ethereum network. They refer to a unit of measure that corresponds to the computational effort required to perform certain network operations.
“Gas prices are indicated in Gwei, which is itself a designation of ETH – each Gwei is equal to 0.000000001 ETH (10-9 ETH). For example, instead of saying your gas costs 0.000000001 Ether, say your gas costs 1 Gwei. “
The average gas fee was 177 gwei yesterday, which is still much lower than the average gwei seen during the DeFi summer.
However, the price of Ethereum was also much lower in the summer, ranging between $ 200 and $ 400.
Gas fees are calculated in relation to the price of Ether. So the higher the price of Ether, the more users pay in gas costs.
With that in mind, in terms of network usability, the worst possible scenario would be for Ether to shoot past its all-time high and average gas prices to hit the same level as during the summer.
If such a situation were to arise, which is likely to happen in the weeks and months to come, Jain’s point about “anti-network effects” would prove correct.