Ethereum (ETH) Faces Tough Times as Price Hits Lowest Level Since 2020,
Underperforming BTC and Major Altcoins
According to CryptoQuant, the primary reason behind ETH’s decline is
weakening network activity, leading to high inflation and a gradual loss of
value over time.
Declining Network Activity
The number of active addresses and transaction fees on Ethereum has
significantly dropped since the beginning of the year. This decline has
pushed ETH’s burn rate to its lowest level since the Merge, weakening its
deflationary mechanism.
Ethereum’s burn mechanism, designed to reduce supply by eliminating a
portion of ETH from gas fees, has become less effective due to lower network
activity. The Decun upgrade transitioned Ethereum to a Proof-of-Stake
mechanism, aiming to burn more ETH than it issues.
However, after the Dencun upgrade introduced blob transactions and lowered
gas fees, ETH burning decreased while issuance increased, putting the asset
back into an inflationary state. The lowest burn rate since the Merge has
intensified inflationary pressure on Ethereum.
“Ethereum’s recent underperformance is largely due to declining network
activity, as evidenced by a drop in active addresses and transaction fees.
These factors, combined with a low burn rate post-Dencun upgrade and
persistently high inflation, continue to exert downward pressure on ETH’s
value,” said CryptoQuant analyst EgyHash.
ETH Drops 4% in a Day
EgyHash believes Ethereum could recover if network activity improves,
increasing active addresses, transaction fees, and ETH burning. Currently,
ETH is trading at $1,810, down 4% on the day, with a 15% loss over the past
month. The cryptocurrency remains over 60% below its cycle peak of $4,000.
Additionally, U.S. trade tariff announcements have negatively impacted ETH’s
price.
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