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Capitulation - The Daily Gwei #250
And then the rug was pulled on all of us.
We’ve all been affected by the high gas fees on Ethereum for the last ~1 year and many of us have unfortunately been priced out of doing certain things on the network. These high gas fees are only exacerbated in times of extreme market volatility which obviously leads to an even more degraded experience for users.
The last 48 hours in the markets were bloody - really bloody - and over the last few hours ETH saw a drop from $3,000 to $1,800 - much lower than almost anyone thought it was going to drop. I was watching it live and once the price went below $2,600, I noticed gwei prices spiking to extreme levels (500+) which meant we were now in “oh shit” territory. As I explained in my tweet above, this is because the price was falling so fast that people were getting scared for their on-chain leveraged positions and were willing to pay anything to get their transaction included in the next Ethereum block (presumably to close their positions).
I mentioned in my tweet that I think the very high gas prices have become a good indicator of general market fear and/or a local bottom but in all honesty I’d need to see more data here. Markets are complex and the centralized exchange space is still much larger in aggregate that the decentralized one (especially on the leverage/margin trading front). On top of this, gas prices can spike to 500+ for other reasons such as an ongoing popular token sale, lots of mania around trading a particular token (like the dog coins), someone spamming the network and more.
Generally if I’m looking at various indicators to try and apply them to the market I do it over the long-term. Short-term signals (whether they are on-chain or off-chain) are usually quote dubious and, as I explained, can be influenced by a number of unrelated factors. Long-term signals can give you an overview of things like network health and activity which help to inform long-term investment decisions (I cover these signals in my monthly data recap video series here).
Anyway, the other day I wrote about why many of these indicators are probably just humans trying to find explanations for extremely complex things. I still believe that some indicators are more useful than others, but I don’t personally trade on any of them and just invest in things based on fundamentals (and always for the long-term). I hope you all fared well over the last 48 hours and always remember: think in years, not days.
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.