Key Points
- Ethereum’s price remains above the $3,000 support level due to continuous selling pressure.
- The Dencun upgrade has caused Ethereum to become inflationary again, affecting its “ultra sound” money characteristics.
Ethereum, the world’s second-largest cryptocurrency, is experiencing constant selling pressure, keeping its price just over the $3,000 mark. This has led to a performance that is deemed “underperforming” compared to Bitcoin, with new Ethereum holders at risk of incurring losses.
Recently, Glassnode, a crypto analytics platform, disclosed that Ethereum speculators are maintaining the altcoin’s price near $3,000. In April, there was a significant pullback in both Bitcoin and Ethereum prices, marking the biggest monthly retracement since the FTX collapse in April 2022. Glassnode stated:
“Ethereum’s deepest drawdown of the cycle has been -44%, which is just over twice as severe as Bitcoin’s at -21%. This highlights Ethereum’s relative underperformance over the last 2 years, which is manifesting in a weaker ETH/BTC ratio also.”
Investor Risks and Market Reactions
As Ethereum’s price downturns lessen in severity, some investor groups are at risk of experiencing losses on their holdings. Short-term Ethereum holders, defined as those holding coins for 155 days or less, currently have an aggregate cost basis of around $3,000.
According to Glassnode, another Ethereum metric, the market cap to realized cap (MVRV), indicates that a new market drop could trigger further panic among holders. Glassnode warned:
“Ethereum’s STH-MVRV is trading at a very slight premium at the moment, which could suggest that spot prices are very close to the cost basis of recent buyers, who may panic should the market experience downside volatility”.
Conversely, long-term holders appear hesitant to engage in mass selling at current prices, despite many having already achieved significant profit margins.
The Impact of the Dencun Upgrade
CryptoQuant, a crypto analytics firm, reported that the Dencun upgrade has made Ethereum inflationary once again, thereby undermining its “ultra sound” money characteristics. The report revealed that Ethereum transaction fees have decreased following the Dencun upgrade, leading to the lowest levels of ETH burned since the Merge event in September 2022.
Since the Merge event, the supply of ETH has been growing at its fastest daily rate. The CryptoQuant analysts explained: “Before the Dencun upgrade, the higher network activity on Ethereum meant higher fees burned and hence less ether supply. However, after the Dencun upgrade, the total amount of fees burned has decoupled from the network activity”.
