- Ethereum’s price has dropped 45% to a 5-year low, driven by declining network activity and rising inflationary pressures post-Dencun upgrade.
- Despite efforts to curb inflation, the network’s reduced transaction volume and burn rate have intensified the downward trend.
Ethereum (ETH), the second-largest cryptocurrency by market cap, has hit its lowest value in five years, sparking concerns about its future. The primary driver of this downturn? A combination of declining network activity and rising inflationary pressures following the Dencun upgrade.
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Ethereum‘s price has tumbled a staggering 45%, leaving many wondering whether inflation is playing a significant role. Despite efforts to bolster the network’s sustainability through the Dencun upgrade, Ethereum has experienced a sharp drop in active addresses, falling from around 525,000 to just 333,000 since the beginning of the year. This reduction in user engagement has translated to fewer transactions, which in turn has lowered transaction fees and reduced the burn rate, further compounding inflationary pressures on the network.
For Ethereum, which had previously benefited from deflationary dynamics post-Merge, the situation looks grim. While the Merge initially reduced Ethereum’s issuance rate and burned more tokens than were created, the Dencun upgrade has failed to counter the rising inflation. The network is now dealing with an increasing supply of ETH, driven by a slower burn rate and declining on-chain activity. This shift marks a stark contrast to Ethereum’s earlier deflationary momentum.
The picture isn’t much brighter when comparing Ethereum’s performance to that of Bitcoin. While Bitcoin has suffered a 10% decline over the past few weeks, Ethereum has experienced a dramatic 45% drop, raising concerns about its ability to recover in the face of significant market challenges.
The question now is whether Ethereum can regain its momentum or if this marks the beginning of a prolonged downturn. The upcoming Pectra upgrade, scheduled for April 30th, may hold the key to addressing the network’s inflation issues, but whether it can successfully restore Ethereum to its deflationary path remains uncertain. For now, Ethereum’s future seems precarious as it faces the dual challenge of inflation and reduced network activity.
