The Ethereum network recently underwent a successful upgrade called “Dencun” with the aim of making it faster and more affordable to use. Following the upgrade, the price of ether has since dropped, which was a predictable pattern based on the cryptocurrency’s past behavior after technical updates. Despite the price dip, there is a possibility that ether could bounce back and rise in value.
Before the Dencun upgrade, ether saw a significant rally of about 50%, surpassing the $4,000 mark for the first time since December 2021. However, the cryptocurrency ended the week down by 7.5%. According to CryptoQuant, the price of ether post-upgrade reached its highest level since December 2021, with the market value to realized value (MVRV) ratio sitting at 2.0, suggesting investors were holding unrealized gains of around 50%.
The technical upgrade that occurred on Wednesday was deemed a success, with positive network activity and supply dynamics already in place leading up to it. The total supply of ether dropped to its lowest level since August 2022, just before the Ethereum network began its transition from proof-of-work to proof-of-stake (the “Merge” upgrade). This decrease in supply was the quickest daily decline since May 2023, according to CryptoQuant.
Ethereum’s fee-burning mechanism was implemented to lower the network’s high transaction fees by removing them from circulation, thus reducing the supply of ether. Long-term investors are optimistic that future upgrades will enhance the network’s usability and competitiveness against other platforms like Solana. The combination of increased activity and decreasing supply over time is expected to drive up the price of ether.
Analysts anticipate that the Dencun upgrade will significantly reduce Layer 2 gas costs, opening up possibilities for further advancements in the Ethereum ecosystem. Despite a 60% increase in 2024, ether’s gains were on par with bitcoin. Investors were particularly anticipating the Dencun upgrade along with the potential approval of spot ether ETFs for trading in the U.S. by the Securities and Exchange Commission in May.
Overall, Ethereum’s recent upgrade and its subsequent effects on the network and cryptocurrency price demonstrate the ongoing evolution and potential for growth within the Ethereum ecosystem.
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