Ethereum ($ETH), the 2nd top crypto asset, is witnessing significant decline in its performance for the last few months. A CryptoQuant analyst has provided the reason behind Ethereum’s worsening performance. As per the analyst, the subdued network operations and consistently decreasing transfer fees have led to a sheer dip in ETH’s valuation. At the moment ETH is trading at $1,782, down 55% since 17th December 2024. The crypto analyst discussed this plunge in network activity in a recent report shared on CryptoQuant’s official website.

Decline in ETH’s Price Performance Results from Declining Network Activity

The data points out that Ethereum is witnessing a considerable decline in its price value because of the overall diminished network operations. This trend raises apprehensions about the long-term sustainability of Ethereum and its potential to compete with the rest of the blockchain ecosystems. A key upsetting factor showing the present struggles of Ethereum is the sheer dip in the network’s active addresses. Since the start of this year, a steady decrease has taken place in its network participation.

Specifically, a few transfers have been processed on a daily basis. This decrease is network engagement clearly influencing the transfer fees. This is reportedly paving the way for a slump in the overall network activity on Ethereum. The transfer fees have been serving as a crucial metric for gauging the network demand.

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The increased fees normally highlight increased usage because the consumers compete for the rapid processing of their transfers. Nonetheless, the recent statistics reveal that the fees per block and on each transfer have reached the record lows. This downtrend points toward the weakening network activity of Ethereum. This reportedly paves the way for a decreased burn rate. Moreover, this also leads to a surge in the $ETH circulating supply.

Merge Upgrade and Dencun Upgrades Contribute to Recent Ethereum Underperformance

According to the CryptoQuant analyst, Ethereum’s shift to the proof-of-stake consensus mechanism and the EIP-1559 upgrade’s implementation focused on increasing deflation. Nevertheless, since the Merge upgrade of Ethereum, a plunge has occurred in Ethereum’s overall network activity. Moreover, the Dencun upgrade has also raised the inflationary pressures. Overall, the weak demand, combined with decreased fees and supply inflation, forces market members to reassess Ethereum’s economic model.