According to IntoTheBlock’s head of research, Lucas Outumuro, the reason for the decline in network activity is the introduction of Layer2.
Ethereum’s deflationary history began after a major network upgrade last year. At that time, the token switched from the Proof-of-Work consensus mechanism to Proof-of-Stake.
During periods of activity, the network burns more tokens than it creates. This limits the supply of tokens, which is considered bullish in the markets given the price. However, when there is low activity on the network, the dynamics change to a bear market.
Previously, analysts at JPMorgan said that the Shanghai network upgrade will not increase network activity as the number of transactions, active addresses, and total token value have declined since April.
Crypto service provider Matrixport reiterated a negative outlook on Ethereum, citing a lack of excitement around the next protocol update and low revenues. In addition, it is noted that if the trend continues, ETH may fall to $1 k.