While the supply of bitcoin is slowing after the halving , the supply of ether is growing at its fastest rate since 2022, according to CryptoQuant – crushing some investor’s dreams of ether as an asset that would grow increasingly scarce. CryptoQuant, which analyzes transactional data from public blockchain networks, said in a report this week that transaction fees on Ethereum are lower thanks to the latest technical upgrade, dubbed Dencun, which took place this March . The median transaction fee is about 4x lower now that it was before Dencun for the same level of network activity. As a result of the lower transaction fees – one of the goals of the Dencun upgrade – the amount of burned ETH is lower too, and is at one of its lowest levels since the September 2022 Merge . Meanwhile, the supply of ETH is growing at its fastest clip since the merge, putting at risk the investment narrative that it would grow scarcer over time, according to CryptoQuant. “[Some] investors were thinking to get exposure to Ethereum based on the thesis that it was getting more scarce, there was less supply,” said Julio Moreno, CryptoQuant’s head of research. “After this, this thesis is not valid anymore.” “This really changed the structure of fees and the structure of the new issuance of Ethereum and the growth of supply,” he added, referring to Dencun. Ethereum has undergone several protocol upgrades over the years that have affected its monetary policy, or the rewards paid to network validators. The 2022 merge transitioned Ethereum from proof-of-work to proof-of-stake , not only to make its infrastructure more energy efficient but also to help slow the rate at which supply would grow. Some investors had hoped ether could compete with bitcoin, whose rate of supply growth slows every four years after the halving. For many, that idea was a side effect of the primary thesis on Ethereum, which sees it as a growing, scalable transaction network on which to build applications. That narrative is still alive and well, Moreno said. “This thesis is supported by this [Dencun] upgrade … because it indeed made Ethereum cheaper, it made it more scalable,” he said. Moreno said the trend of enhanced supply will be difficult to reverse, given that the fees getting burned have plummeted despite network activity staying strong. Historically with high network activity, the burn rate would spike. Network activity would have to increase 3 to 4x to reverse the growing supply trend, if this relationship holds, he said.
