ethereum network activity and supply dynamics have remained positive during the first hours after Dencun, the most complex hard fork since the merger, was launched on the blockchain.
CryptoQuant's latest weekly report said that Ether (eth) faces a risk of price correction in the near term despite positive network activity.
The dynamics of the ethereum network are positive
The Dencun update, shipped on March 13, is designed to significantly reduce transaction fees for ethereum-based Layer 2 networks through a mechanism called proto-danksharding. As CryptoPotato Proto-danksharding reportedly seeks to improve the scalability of ethereum by expanding the capacity of data blobs, which will function as temporary storage spaces.
Following the successful launch of Dencun, the total eth supply has continued to decline, falling to its lowest level since August 2022. With the total eth supply sitting at 120.09 million, it is falling to a seven-day average of – 5,000 eth. the fastest daily pace since May 2023.
CryptoQuant attributed this overall supply decline to the high level at which ethereum transaction fees are being burned. Since transaction costs exceeding the base network fee are sent to an inactive address, the total supply of eth is dropping significantly.
The increase in transaction fees is due to high activity on the ethereum network. This is evident in the number of daily transactions reaching high levels not seen since May 2023. Additionally, eth transfers are at high levels, totaling over one million per day.
Price correction risk
In addition to increased network activity, transaction fees, and transfers, a large amount of eth is currently at stake. Over 31.7 million eth have been staked, representing around 26% of the total eth supply.
Although these on-chain metrics are positive for ethereum, eth still faces the risk of price correction. Analysts said the asset is at its most expensive level since December 2021, indicating the risk of a price drop.
Additionally, ether's MVRV ratio is 2.0, indicating that the asset's value is 2x its average on-chain purchase price and that eth holders have 50% unrealized gains. Notably, ether's MVRV ratio was last seen on November 30, 2021, when the asset was worth $4,693.
Meanwhile, eth fell more than 6% at the end of the work week and was ethereum/” data-wpel-link=”external” target=”_blank”>trade at less than $3,700 at the time of writing.
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