According to CryptoPotato, the Ethereum network's activity and supply dynamics have remained positive in the first hours after the Dencun upgrade, the most complex hard fork since the Merge, was launched on the blockchain. Despite the positive network activity, Ether (ETH) faces a risk of price correction in the short term, according to the latest weekly report from CryptoQuant.
The Dencun upgrade, which was implemented on March 13, aims to significantly reduce transaction fees on Ethereum-based layer-2 networks through a mechanism called proto-danksharding. This mechanism seeks to improve Ethereum's scalability by increasing the capacity for data blobs, which will serve as temporary storage spaces. Following the successful launch of Dencun, the total supply of ETH has continued to decline, reaching its lowest level since August 2022. The total ETH supply now stands at 120.09 million, falling at a seven-day average of -5,000 ETH, the fastest daily pace since May 2023.
CryptoQuant attributes this decline in total supply to the high level of Ethereum transaction fees being burnt. As transaction costs exceeding the base network fee are sent to an inactive address, the total supply of ETH is falling significantly. The increase in transaction fees is due to high activity on the Ethereum network, with the number of daily transactions surging to levels not seen since May 2023. Additionally, ETH transfers are at high levels, totaling more than one million daily.
Despite 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 say the asset is at its most expensive level since December 2021, signaling the risk of a price retreat. Furthermore, 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.
