Ethereum (ETH), the second-largest cryptocurrency by market capitalization, underwent a significant transformation with the activation of EIP 1559, which introduced a periodic burn of Ethereum fees based on network activity dynamics. This change made Ethereum deflationary, as the number of tokens issued started to fall below the amount of ETH being burned. However, recent developments in the cryptocurrency space have cast a shadow on Ethereum's deflationary aspirations.
Meanwhile, the leading altcoin faced a challenging day of trading as per data from the popular cryptocurrency price tracking website, CoinStats. ETH encountered a notable setback, with its price plummeting to $1,578.33, marking a 2.04% decline over the past 24 hours. This decline compounded its woes as ETH also endured a negative weekly performance, with a 2.67% drop in its value over the last seven days. Moreover, ETH found itself in the shadow of Bitcoin (BTC), the largest cryptocurrency by market capitalization.
Taking a closer look at the technical aspects of ETH's price movement, it becomes evident that the cryptocurrency faced some critical challenges. Over the past 24 hours, ETH breached the crucial support level at $1,580 and closed below it in the previous trading session. Although ETH made an effort to reclaim this vital level, it was met with resistance from bears, resulting in the cryptocurrency's price trending downward. However, amidst these challenges, a glimmer of hope emerged in the form of a descending wedge chart pattern.
This bullish formation hinted at the possibility of ETH breaking out to the upside in the near future. As the cryptocurrency market continues to navigate these dynamics, ETH traders and enthusiasts remain watchful, awaiting confirmation of the pattern's validity and its impact on the altcoin's future performance.
EIP 1559 and Ethereum's Deflationary Period
EIP 1559 was a milestone in Ethereum's history, designed to address the network's fee-related issues and improve user experience. It introduced a mechanism that burned a portion of transaction fees, effectively reducing the circulating supply of Ethereum. For a while, it seemed like Ethereum was on its way to becoming a deflationary asset, but recent data suggests a different story.
Ethereum's Supply Conundrum
In the last 30 days, Ethereum has experienced a net increase in the number of coins in its supply. During this period, a total of 63,490 ETH were burned, while 65,548 ETH were issued. This resulted in the addition of 2,058 "new" coins to Ethereum's circulating supply, according to data tracked by Ultrasound Money's analytical dashboard.
This shift towards inflationary tendencies is a notable deviation from the expected trend following the implementation of EIP 1559. In the past year, the Ethereum supply had consistently decreased by over 300,000 ETH thanks to the activation of this protocol. However, the ongoing anomaly can be attributed to the remarkably low activity of Ethereum accounts.
Dwindling On-Chain Activity
One of the key drivers of Ethereum's deflationary status was the high demand for network activity. More transactions meant higher fees, which led to more ETH being burned. Unfortunately, Ethereum's on-chain activity has taken a nosedive recently. ETH gas metrics are currently hovering near 2023 lows, with some indicators dropping even lower.
For instance, CoinMetrics reports a mean ETH fee below $2.5, the lowest level since January 2023. This translates to shockingly low fees for on-chain transactions, with some transactions costing as little as $3 for an OpenSea sale and $7.6 for on-chain swaps via Uniswap (UNI). These fee levels are far cry from what was expected when EIP 1559 was activated.
MEV Bots and Ethereum's Gas Spending
Intriguingly, amid the apathetic performance of on-chain actors, Miner Extractable Value (MEV) bots have emerged as the most productive spenders of Ethereum gas. Jared From Subway, the operator of one such MEV bot, has paid over $70 million in gas fees since its launch in February 2023. Despite executing fewer transactions than wallets of exchanges, this bot has outspent them in gas fees.
During periods of sluggish market performance, Ethereum MEV bots, which front-run transactions by paying extra gas fees, have been responsible for a substantial portion, estimated at 80-90%, of top decentralized exchanges' trading volumes.
The Implications of Ethereum's Changing Dynamics
The evolving dynamics in Ethereum's supply and on-chain activity have significant implications for the cryptocurrency and the broader blockchain ecosystem. While EIP 1559 was hailed as a solution to Ethereum's high gas fees and a step towards deflation, it now faces challenges in maintaining its deflationary trajectory.
The decline in on-chain activity and the rise of MEV bots as major gas spenders highlight the need for Ethereum to adapt and find a balance between network security, decentralization, and user-friendliness. As Ethereum continues to navigate these challenges, the cryptocurrency community will be closely watching to see how the network evolves to maintain its position in the rapidly changing landscape of blockchain and digital assets.
The cryptocurrency price tracking website, CoinStats, indicated that ETH experienced a drop in its price throughout the past day of trading. At press time, the altcoin was changing hands at $1,578.33, which was a 2.04% lower compared to the previous 24-hour cycle. This daily loss added to ETH’s negative weekly performance as well. Consequently, ETH’s price was down 2.67% over the last 7 days.
Price chart for ETH (Source: CoinStats)
Meanwhile, the altcoin leader was also outperformed by the largest cryptocurrency by market cap, Bitcoin (BTC), throughout the past 24 hours. CoinStats indicated that ETH had weakened 1.45% against BTC during this period, which meant that 1 ETH token was valued at 0.0614928 BTC at press time.
Daily chart for ETH/USDT (Source: TradingView)
Over the past 24 hours, the price of ETH broke below the key support level at $1,580 and closed yesterday’s trading session below this price point. Earlier today, the leading altcoin attempted to reclaim a position back above this significant level, but bears were quick to respond - forcing the cryptocurrency’s price back down.
Despite being unable to recover back above $1,580, ETH’s price printed a lower low yesterday. Together with the lower highs that had been established on ETH’s daily chart during the past 2 weeks, yesterday’s fresh low resulted in the formation of a descending wedge chart pattern. This bullish chart pattern suggests that the altcoin’s price may breakout towards the upside soon.
If this bullish chart pattern is validated, ETH’s price could break above the $1,580 threshold soon before potentially climbing higher in the following fortnight. If this potential bullish momentum is sustained, ETH’s price may attempt to flip the $1,690 resistance level into support. Thereafter, the cryptocurrency may attempt to challenge the $1,775 barrier as well.
It may take a few days for this pattern to be validated, however, as technical indicators on ETH’s daily chart revealed that momentum was in favor of bears at press time. Firstly, the 9-day EMA line was positioned below the 20-day EMA line, which suggested that ETH’s short-term momentum was bearish. In addition to this, a bearish technical flag was recently triggered, as the daily MACD line crossed below the daily MACD Signal line. These technical indicators, if validated, could be followed by a further decrease in ETH’s value. In this scenario, the leading altcoin’s price could drop to as low as $1,480 in the coming few days.
Disclaimer: Coinpaper does not recommend that any cryptocurrency should be bought, sold, or held by you. Always conduct your own research and consult your financial advisor before investing in any digital asset.