It happens over and over again in crypto: severe dumps!
But now, you have to view dumps differently. In fact, dumps are bullish! This is called “Bullish Selling”! But why is this so, and what is Bullish Selling anyway?
What is Bullish Selling?
So, what is bullish selling anyway? Everything started with EIP-1559. EIP-1559 is an update that launched earlier this year. It introduced a burning mechanism to the Ethereum mainnet. Whenever a transaction is executed, the fee of each transaction (calculated in ETH) gets burned. And because of this, ETH becomes deflationary over time.
In plain words: every day we eliminate vast amounts of ETH because we make transactions on Ethereum.
So, the more people make transactions, the more ETH gets burnt making ETH scarcer.
This is where Bullish Selling comes into play!
Because in extreme market situations vast amounts of ETH get burnt – no matter if it is an extreme bullish or bearish market situation.
Bullish market situations are now even more extreme because the higher the price goes and the more people buy ETH, the scarcer ETH gets. And in a bearish market situation, people are panicking and sell ETH. Also, in this case, ETH gets burnt and becomes scarcer!
This is what we call “Bullish Selling”. Because even when prices are dumping significantly, this is bullish as ETH as an asset becomes scarcer! So, short-term dumps are bullish long-term!
Bullish Selling reduces volatility long-term
Bullish Selling and the deflationary characteristic of ETH will most likely make dumps and pumps even more extreme in the near future. But long-term the opposite could be the case. This could decrease the volatility of the crypto industry significantly!
Because people will think twice if they really want to panic sell. People will think twice before executing “10x Yolo Trades” on BitFinex and Co. Because why the hell should you pump other people’s bags?
Because of EIP-1559, people will be more cautious when spending their ETH. ETH will only be used for creating wealth. E.g. to deposit it into staking contracts, providing liquidity, borrowing money, etc.!
This will lower the volatility of the whole crypto market on the other hand!
All in all: due to EIP-1559, the characteristics of bearish and bullish market sentiments changed. But, most likely, other networks will integrate similar burning mechanisms as well. With the launch of GravitDex, the Cosmos Community discuss the integration of a burning mechanism for ATOM as well. Also, Cardano will integrate a burning mechanism.
So, we will probably see more bullish selling in the future, which will decrease crypto’s volatility on the other hand.