- Ethereum’s supply hits a new high, increasing selling pressure and hindering price growth.
- The Dencun upgrade reduced fees, weakening Ethereum’s deflationary mechanism.
- Ethereum’s Pectra upgrade brings key improvements, offering hope for future scalability.
Ethereum may be poised for a comeback as the latest on-chain data from CryptoQuant signals a rare undervaluation relative to Bitcoin, hinting at a possible accumulation phase. The analytical platform’s data indicated that ETH/BTC MVRV is low, signaling a possible entry point for buying. Historically, ETH outperformance has been preceded by such low levels. However, existing fundamentals indicate several impediments that may cap a vigorous comeback in the price of Ethereum.
ETH’s supply now exceeds 120.7 million ETH, an all-time high. This shows a change from the post-merger deflationary perspective. The rise in supply puts pressure on selling, which could negatively impact the price of ETH. Without the powerful demand drivers, this increasing supply may worsen price woes.
Impact of Dencun Upgrade
The Dencun upgrade has effectively reduced transaction fees, but it has already contributed to the supply problem. Due to the reduced fees, the ETH burn rate has been very close to zero. Given that the EIP-1559 deflationary mechanism is gas fees-based, reduced prices have undermined Ethereum’s deflationary characteristics. Such structural changes suggest a low probability of the deflationary effects returning soon.
The on-chain activity on the Ethereum network has been flat since 2021. The transaction count and active addresses have experienced minimal increases. As Layer 2 networks have grown, much of this development has come at the cost of main net activity, reducing demand for Ethereum block space, shrinking fee production, and devaluing the value proposition.
Related: Ethereum (ETH) Price Prediction for May 9: Can Bulls Sustain the Breakout?
Meanwhile, the investor interest in ETH also declined. According to data, there has been a reduction in the staked ETH and a decrease in institutional investors’ holdings. The value staked has decreased from the peak, however, fund holdings remain downward. Such indicators showcase a lack of confidence in crypto-natives and conventional investors.
Pectra Upgrade Enhancements
Despite these concerns, Ethereum’s recently implemented Pectra upgrade creates a glimmer of hope. The upgrade ensures 11 key improvements to the network, such as support for smart contract wallets and smarter validator operations. Pectra also raises the staking cap and allows withdrawals through smart contracts. These upgrades seek to make Ethereum more scalable and accessible, strengthening its long-term fundamentals.
Although Ethereum is facing serious headwinds, the Pectra upgrade can create a foundation for the future. Such advancements may technically bolster network fundamentals and potentially boost interest in ETH.
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
