In the midst of declining Ethereum activity, Ether (ETH) has turned inflationary, analysts claim, which could have an impact on the token’s price.According to statistics from blockchain analytics company IntoTheBlock, network fees, a proxy for usage, fell more than 9% this week to $22.1 million, the lowest level in nine months.
Data from Ultrasound.money indicates that as a result, the supply of ETH, Ethereum’s native token, has been growing since fewer tokens were burned to confirm transactions than were created.
According to Lucas Outumuro, research head at IntoTheBlock, the adoption of layer 2 networks is one of the factors contributing to the drop in network fees, which is expected to continue in the near future.
“[This trend] may be putting some pressure on the second largest crypto-asset, as its supply has been growing over the past month, reverting its deflationary trend,” IntoTheBlock wrote in a report.
After last year’s Merge, a significant network update in which Ethereum switched from a proof-of-work to a proof-of-stake consensus mechanism, the deflationary narrative about Ether first surfaced. This change fundamentally altered the supply dynamics of the cryptocurrency.
When the network is active, it creates fewer tokens than it burns, which reduces the supply and is generally positive for the price.The dynamic, however, changes when network demand is minimal.IntoTheBlock joined a long list of other cryptocurrency watchers in highlighting ETH bearish events.In a research released earlier this week, JPMorgan analysts claimed that Ethereum’s eagerly awaited Shanghai upgrade has failed to increase network activity because transaction counts, active addresses, and the total value of assets held on the blockchain have all decreased since April.
In a market report on Friday, cryptocurrency services provider Matrixport repeated its unfavorable assessment of the cryptocurrency asset in comparison to BTC, noting “shockingly low revenues” and “lack of buzz” surrounding the upcoming protocol change.The company predicted earlier this month that if the trend persists, ETH may drop as low as $1,000.Recently, ETH was traded at $1,591 and has since fallen to a 14-month low against BTC.