CryptoQuant researchers believe that Ethereum and ether are going in the wrong direction. ETH is no longer “ultra solid money”.
Ethereum lost due to Dencun?
CryptoQuant analysts analyzed how Ethereum works today. They indicate that the rate of ETH “burning” is decreasing.
Let's start with the fact that the Dencun network update is assessed positively. Ethereum developers have introduced proto-danksharding, which increases network efficiency and lowers transaction processing costs (though not at layer 1, but at layer 2, such as Arbitrum. So this could increase Ethereum adoption.
Indeed, tier 2 gas rates have dropped dramatically and activity has increased on the Arbitrum, Optimism and Base platforms. However, the reduction in gas fees led to a decrease in the rate of “burning” of ether.
Let's look at the chart from ultrasound.money, which allows you to track the supply of ETH going to staking pools, thus reducing the number of ethers that are in circulation. A rebound has been visible since the turn of March and April. The supply of ETH in free circulation is growing (although it is still much smaller than at the time of the transition from Proof of Work to Proof of Stake).
Although today we should be far from concluding that ether is becoming an inflationary currency again, CryptoQuant analysts see a threat in the above phenomenon.
Why is it important?
In fact, all this shows us a paradox. On the one hand, network updates may increase the adoption of its technology. More people will simply use Ethereum more often. This means a spike in demand for ether, the internal currency of this blockchain.
There is also the other side of this coin. The idea is that an increase in ether usage means fewer coins are being staked. At least for now. When we reach the stage of an advanced bull market, there may be a great supply shock. Ether will be wanted by investors (especially when spot ETFs are created in the US), users and people who want to stake the cryptocurrency. This will mean a real war for ETH! The result may be a huge price drop.
The above text does not constitute investment advice.
