Understanding the Impact of Ethereum’s Latest Upgrade on Long-Term Investors
Ethereum’s recent upgrade has had unintended consequences for long-term Ethereum (ETH) investors. The Dencun hard fork, which was implemented on March 13, significantly reduced transaction fees on Ethereum layer-2 networks. While this resulted in lower fees for users, it also had implications for the overall supply of ETH and its status as a store of value.
Reduced Transaction Fees
- Dencun hard fork slashed transaction fees by over 90% on multiple Ethereum layer-2 networks.
- The median Ethereum transaction fee has decreased four times lower compared to before the Dencun upgrade.
Impact on Circulating Supply
- Due to lower fees, the Ethereum network is burning ETH at a slower rate, leading to a decrease in the circulating supply.
- The burn rate is now so low that ETH has become an inflationary currency, issuing more units than are burned.
Death of the Ultrasound Money Narrative
- After the Merge and the transition to proof of stake, Ethereum was dubbed “ultrasound money” due to its decreasing supply.
- However, with the inflation rate back above zero, the ultrasound money narrative has lost its appeal.
Challenges Ahead for Ethereum
- Reviving network activity may not be enough to restore Ethereum’s deflationary status.
- Fees burned on Ethereum were previously correlated with network activity but have declined significantly post-Dencun.
Hot Take: Decoding Ethereum’s Shift from Ultrasound Money to Inflationary Asset
The recent changes in Ethereum’s supply dynamics have significant implications for its long-term value proposition. As the network adapts to lower transaction fees, investors will need to reassess the role of ETH in their portfolios. Stay tuned for more updates on Ethereum’s evolving narrative in the crypto space.
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