Why the Ethereum (ETH) Price Has Been Plunging After the Dencun Upgrade: Has the Token Become Inflationary?

The latest Ethereum hard fork, Dencun, went live on March 13, 2024, and was deployed on the mainnet to reduce rising transaction fees. The fees have been significantly reduced while the platform’s scalability has increased, but the price appears to have had no positive impact. The ETH price faced rejection shortly after the upgrade, resulting in a steep bearish trend that has continued to this day. This has compelled the market participants to think about whether the upgrade has been a major reason for Ethereum’s downfall!

The Ethereum blockchain was unable to facilitate a large number of transactions, which created congestion, resulting in a longer processing time and huge transaction fees. However, it was believed that the upgrade could help the platform achieve stability, which may further boost the ETH price. However, the recent findings do point towards the token becoming inflationary again, having become deflationary after the merger. 

Rise in the Total Supply

The Ethereum total supply, which was rising at a greater pace, was slashed hard soon after the merger as the platform transitioned from the PoW to the PoS consensus mechanism. After the recent upgrade, there has been a rise in the total supply. This supply decline accelerated when more transaction fees were being burned. 

Translation Fee Reduced While Total Transaction Increased

The main aim of the merger was to make Ethereum an ultrasound money, which was on track displaying a slight reduction in total supply. However, after the Dencun upgrade, the transaction fees and the ETH burn rate dropped. Unfortunately, this has led to an increase in supply, which is feared to make the asset inflationary. 

A Steep Rise in the New Issuance

The recent on-chain reading shows that the Decun upgrade has reversed the impact of the merger on the platform. Ethereum’s transaction fees from network activity have been dropping but with a jump in user activity. The new supply is now growing at the fastest daily rate since the merger, as fees plummeted as a consequence of the Dencun upgrade. 

These could be a few potential reasons why the Ethereum (ETH) price has remained under bearish heat despite the bullish events. Besides, a delay in the spot Ethereum ETF may inversely impact the price, which is believed to fall to the $2500–$2700 range. 

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