of Ethereum The long-awaited “Dencun” update was successfully completed on Wednesday and aims to make the use of the network faster and cheaper.
Historically, Ethereum Begins to Decline After Updates
However, ETH price has been trading lower since then, following a pattern seen after previous technology updates.
Ahead of Dencun, Ethereum rallied nearly 50%, surpassing $4,000 for the first time since December 2021. However, by the end of the week it had fallen to just above $3,600, a 7.5% decline.
This price behavior is not unexpected, as historically after major upgrades there is a possibility of a decline before a rise. According to CryptoQuant, Ethereum’s price appreciation after Dencun was its most expensive since its peak in December 2021, with a market value to realized value (MVRV) ratio of 2.0, making the price more than twice the average on-chain purchase price. shows that it is high.
Despite the post-upgrade price drop, network activity and supply dynamics were already positive entering Dencun. Total ETH supply fell to its lowest level since August 2022, just before Ethereum’s “Merge” upgrade, with supply experiencing its steepest daily decline since May 2023.
“High activity on the Ethereum network has led to higher transaction fees and therefore more fees being burned as ETH,” said Julio Moreno, research manager at CryptoQuant.
“Total daily transactions are at record levels not seen since May 2023. High transaction activity causes network fees to rise, burning more fees and reducing total supply.”
Introduced to regulate high transaction fees, Ethereum’s fee burn mechanism reduces the supply of ETH by removing fees from circulation.
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Long-term Ethereum investors expect subsequent updates to make the network more attractive and competitive with alternatives like Solana. They hope that the combination of increased activity and decreasing supply will push the price of ETH higher over time.
“Dencun represents the most significant hardfork since Merge,” said William Ogden Moore of Grayscale Research.
“This update is expected to reduce Layer 2 transaction fee costs by 5x to 50x, increase the bandwidth of Ethereum Layer 2s, and be a significant step in the maturation phase of the Ethereum ecosystem while addressing scalability challenges.”
*This is not investment advice.
Source: Bitcoinsistemi.com