Ethereum's Supply Surges 120.7M, Price Growth Stalled by Dencun Upgrade

Ethereum's supply has reached a new high, surpassing 120.7 million ETH, which is an all-time high. This increase in supply has led to heightened selling pressure, making it difficult for the price of Ethereum to grow. The situation is further complicated by the Dencun upgrade, which has reduced transaction fees. While this reduction benefits users by lowering costs, it has also weakened Ethereum's deflationary mechanism. The deflationary mechanism, which relies on burning a portion of the gas fees, has seen its burn rate approach zero due to the lower fees. This structural change suggests that the deflationary effects may not return soon, adding to the challenges faced by Ethereum.

Despite these obstacles, there are signs that Ethereum may be undervalued compared to Bitcoin. On-chain data from CryptoQuant indicates that the ETH/BTC MVRV is at a low level, which historically has preceded periods of Ethereum outperforming Bitcoin. However, the current fundamentals present several hurdles that could limit a strong rebound in Ethereum's price. The on-chain activity on the Ethereum network has remained stagnant since 2021, with minimal increases in transaction counts and active addresses. Much of the recent development has occurred on Layer 2 networks, which has reduced demand for Ethereum's main net activity. This shift has led to a decrease in fee production and a devaluation of Ethereum's value proposition.

Investor interest in Ethereum has also waned. There has been a reduction in the amount of staked ETH and a decrease in institutional investors' holdings. The value staked has decreased from its peak, and fund holdings continue to trend downward. These indicators suggest a lack of confidence among both crypto-native and conventional investors. The Pectra upgrade, however, offers a glimmer of hope for Ethereum. This upgrade introduces 11 key improvements to the network, including support for smart contract wallets, smarter validator operations, an increased staking cap, and the ability to withdraw through smart contracts. These enhancements aim to make Ethereum more scalable and accessible, potentially bolstering its long-term fundamentals and attracting renewed interest in ETH.