The Ethereum network’s activity and supply dynamics have remained positive over the first hours after Dencun, the most complex hard fork since the Merge, was launched on the blockchain.
The latest weekly report from CryptoQuant said Ether (ETH) faces a risk of price correction in the short term despite positive network activity.
Ethereum Network Dynamics Are Positive
The Dencun upgrade, shipped on March 13, is designed to significantly slash Ethereum-based layer-2 networks’ transaction fees through a mechanism called proto-danksharding. As CryptoPotato reported, proto-danksharding seeks to enhance Ethereum’s scalability by expanding the capacity for data blobs, which will function as temporary storage spaces.
Following the successful launch of Dencun, the total supply of ETH 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 at a seven-day average of -5,000 ETH, the fastest daily pace since May 2023.
CryptoQuant attributed this total supply decline to the high level at which Ethereum transaction fees are burnt. Since transaction costs that exceed the base network fee are sent to an inactive address, the total supply of ETH is falling significantly.
The spike in transaction fees is due to high activity on the Ethereum network. This is evident in the number of daily transactions surging to high levels not seen since May 2023. Also, ETH transfers are at high levels, totaling more than one million daily.
Risk of Price Correction
Besides the rise in network activity, transaction fees, and transfers, a high number of ETH are currently staked. 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 a risk of price correction. Analysts said the asset is at its most expensive level since December 2021, signaling the risk of a price retreat.
In addition, ether’s MVRV ratio stands at 2.0, indicating the asset’s value is 2x above its average on-chain purchase price and that ETH holders have 50% unrealized profit. Notably, ether’s MVRV ratio was last seen on November 30, 2021, when the asset was worth $4,693.
Meanwhile, ETH fell by more than 6% at the end of the working week and was trading at under $3,700 at the time of writing.
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