Why Did OP and STRK React Negatively to Transaction Fee Reduction? Credit: Hameem Sarwar
Key Takeaways
- The Dencun upgrade marks a milestone in layer-2 scaling, greatly reducing transaction fees.
- Reduced transaction fees on Starknet and Optimism failed to ignite an immediate bullish rally.
- Is there another reason why OP and STRK reacted poorly to this positive development?
The Ethereum Dencun upgrade brought reduced transaction fees on Layer-2 networks. Despite this, the token prices for two of the biggest Ethereum Layer-2 scaling solutions, Optimism and Starknet, plummeted post-upgrade, indicating a lack of immediate market response.
As investors grapple with the disconnect between protocol upgrades and price movements, the question arises: Will reduced fees eventually translate into token price appreciation?
Dencun Reduces Layer-2 Transaction Costs
The Ethereum Dencun upgrade, deployed on March 13, 2024, signifies a major stride in layer-2 scaling solutions. Combining elements from Cancun and Deneb upgrades, it targets fee reduction across layer-2 networks. With Proto-Danksharding, gas fees are set to decrease, enhancing Ethereum’s scalability and functionality significantly.
After the Dencun upgrade went live on March 14, transaction fees on Layer 2-s were greatly reduced. Starknet (green) and Optimism (red) stand out with median transaction costs of $0.016 and $0.027, respectively. This was also noted by the inventor of the Uniswap protocol, Hayden Adams, who tweeted that it costs less than $0.01 in gas to trade in Uniswap on Optimism.
However, the OP and STRK prices did not have a positive reaction despite the reduction in fees. To the contrary, both have fallen by more than 10%.
OP Price Returns to Middle of Range
The daily time frame technical analysis shows the OP price has fallen since its $4.86 high on March 6. The decrease took OP back to the middle of its previous long-term range. So, the previous breakout is now considered a deviation.
An interesting development in the price action is the potential breakdown from the ascending support trend line that has existed for 52 days. Since there are 14 hours left until the daily candlestick closes, the breakdown is not confirmed yet.
The ascending support trend line is at $4. OP trades inside a confluence of support levels, more specifically the middle of the range and the 0.5-0.618 Fib retracement support levels.
The MACD and RSI are both gradually turning bearish. The RSI fell below 50 (red icon) and the MACD generated a bearish cross. If the daily candlestick holds, the indicator readings will support the validity of the breakdown below the trend line.
In that case, the OP price could potentially fall toward its range low at $3. Conversely, reclaiming the ascending support trend line will mean the previous upward trend will resume. So, the daily close is crucial in determining the future trend.
Can STRK Reclaim Range High?
The STRK price movement is very similar to that of OP. STRK has fallen since March 13 and decreased below its range high of $2.30 earlier today. STRK reached a low of $2 before bouncing, validating the 0.618 Fib retracement support level before bouncing (green icon). This is also the middle of its range.
The main difference is that STRK fell after the RSI generated a bearish divergence (green line), while there was no divergence in OP. In that sense, the STRK decrease was more predictable than that of OP.
Both the RSI and MACD now gives bearish readings. The indicators are mired in a downward trend, the RSI is below 50 and the MACD is negative. All these are signs of bearish trends.
The decrease for both OP and STRK is explainable when taking into account the Bitcoin price. The BTC price topped on March 14 (red line) and has fallen by more than 2% since. In contrast, STRK (white) and OP (purple) have fallen by 12 and 20%, respectively. Their movements have mirrored that of BTC but at a larger scale.
This is indicative that despite positive developments, both OP and STRK closely follow the BTC movement in the short-term, mirroring its volatility.
Short-Term Slide Could Be Temporary
Despite the significant decrease in fees, the OP and STRK prices have both fallen since the upgrade. This conveys that such upgrades do not have an immediate effect on the price and that the cryptocurrency market is greatly correlated to Bitcoin’s movement. Despite today’s fall, both OP and STRK are set to benefit by reduced transaction fees in the long-term.
Ethereum Dencun Upgrade to Lower Gas Fees and Propel L2 Innovation, Says Optimism Labs Chief
Dencun and Layer 2s: Optimism, Arbitrum and Others Get Ready for Ethereum Upgrade
Dencun Upgrade Live: What Ethereum Hard Fork Means, Why It Happened, What Next?
