In recent months, the Ethereum ecosystem has faced significant challenges, with ether (ETH) plummeting to levels not seen since 2020. In stark contrast to bitcoin (BTC) and other major altcoins, ETH’s performance has been lackluster, raising concerns among investors and analysts alike. The trend suggests that the downward spiral may not be coming to an end anytime soon.
According to a report from the market analytics platform CryptoQuant, one of the primary reasons for Ethereum’s declining value is reduced network activity. This ongoing lack of engagement is contributing to a disturbingly high inflation rate for ETH, exacerbating the cryptocurrency’s depreciation.
Diminishing Network Activity
The number of active addresses on the Ethereum network has been steadily decreasing since the start of the year. Additionally, average transaction fees and fees per block have plummeted to record lows. The combination of these low fees and the reduction in active addresses has resulted in the ETH burn rate falling to its lowest point since the Merge.
It is important to remember that Ethereum implemented a burn mechanism designed to permanently remove a portion of ETH from circulation, thereby aiming to maintain the asset’s deflationary nature over time. This mechanism takes coins from Ethereum gas fees and removes them from the available supply.
The Merge, which marked Ethereum’s transition from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism, was designed to enhance this burn mechanism and ensure that more ETH was burned than produced. However, following the recent Dencun upgrade, which introduced ‘blobs’ and succeeded in reducing transaction fees, we observed a troubling trend in which less ETH was burned while more was minted. This shift has allowed ether to become inflationary once more, with the burn rate now hovering at its lowest level since the Merge, intensifying inflationary pressures on the cryptocurrency.
“Ethereum’s recent underperformance can be largely attributed to diminished network activity, as evidenced by declining active addresses and reduced transaction fees. These factors, coupled with a low burn rate post-Dencun upgrade and a continuous high inflation rate, continue to exert downward pressure on the asset’s value,” stated the pseudonymous CryptoQuant analyst EgyHash.
ETH Down 4% Daily
Moreover, EgyHash pointed out that Ethereum could experience a potential recovery if there is a notable increase in network activity, specifically an uptick in active addresses, which would lead to higher transaction fees and increased ETH being burned.
As of this writing, ETH is valued at $1,790, reflecting a daily decrease of 4%, according to CoinMarketCap data. Notably, this decline has been compounded by external factors, including the recent announcement of trade tariffs in the United States that negatively impacted market sentiment.
Additionally, ether has lost 16% of its value over the past month and has descended over 60% from its peak of about $4,000 in this market cycle.
The original post Here’s Why Ethereum (ETH) Continues to Bleed, According to CryptoQuant was published on CryptoPotato.
