The past few months have been challenging for Ethereum ecosystems, with ether (ETH) dropping to levels not seen since 2020. ETH has significantly reduced performance compared to Bitcoin (BTC) and some major cap altcoins. What’s worse, the bleeding doesn’t seem to stop anytime soon.
A report by Cryptoquant, a market analysis platform, shows that declining network activity is one of the main reasons why Ethereum is losing its value. This continuous, restrained activity contributes to high inflation in ETH, and cryptocurrencies lose their value over time.
Reduced network activity
The number of active addresses in Ethereum has been steadily decreasing since the beginning of the year. Additionally, average fees per transaction and fees per block fell sharply, marking lows. As a result of low prices and low active addresses, ETH burn rates have dropped to the lowest level since merge.
Remember that Ethereum introduced a burn mechanism to remove some of the ETH from the circulation, ensuring that assets remain deflationary over time. These coins will be taken from Ethereum gas fees and will be permanently removed from the supply.
The merge, which marked the transition of Ethereum from Proof of Work (POW) to Proof of Proof of Proof of Proof (POS) consensus mechanisms, aims to reinforce this concept by ensuring that more ETH is burned than production.
However, after Dencun upgrades last year (introducing blobs and reducing transaction fee reductions), ETH has been reduced, and more minted. This has made the ether inflation again. As ETH burn rates hover at the lowest level since merge, inflation pressure on cryptocurrencies is increasing.
“Ethereum’s recent misperformance can be largely due to lower network activity, as evidenced by a decrease in active addresses and reduced transaction fees. These factors, coupled with low rates of combustion after decongestation and ongoing high rates of expansion, continue to put downward pressure on the value of assets.
ETH is down 4% every day
Furthermore, Egypthash said that if there is a positive change in network activity, Ethereum faces potential recovery potential.
At the time of writing, ETH was worth $1,790, down 4% a day per CoinMarketCap data. In particular, the asset was negatively affected by an announcement confirming the implementation of trade tariffs in the United States.
Additionally, ether has lost 16% of its value over the past month, dropping more than 60% as the peak of this cycle is just above $4,000.
