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- CoinShares Ethereum research associate Luke Nolan has warned that Ethereum’s ETH supply could be affected by the Dencun upgrade.
- The upgrade could impact ether burnt on the network by reducing the circulating supply.
CoinShares Ethereum research analysts have revealed that the upcoming Dencun upgrade could impact Ether, the native cryptocurrency of the Ethereum blockchain. CoinShares Ethereum research associate Luke Nolan further anticipates that the upgrade could come into effect this March, ushering in a new era for the smart contracts platform.
The upcoming upgrade will enable Layer 2 transactions to be sent to the Ethereum network through blobspace. The new mechanism will introduce reduced gas usage and a reduced amount of ether. Currently, the ether used to pay gas base fees for transactions is burned. This approach will lead to reduced gas usage and a lower amount of ether burnt.
In an interview with a leading media outlet, Nolan noted;
Transactional calldata makes up 90% of the costs Layer 2s pay in terms of gas fees. But after the Dencun upgrade, instead of posting their data through calldata, Layer 2s can use the new blobspace mechanism, which has significantly lower gas costs. So, if we expect layer 2s to gradually shift to using this new blobspace mechanism, we could see gas prices settle at lower levels, which means less ether is burned,
Ideally, token burning is designed to reduce the amount of coins in circulation to catalyze demand and drive prices higher. This has been a key feature for investors evaluating which tokens to hold in their portfolio and has led to a growing trend in the crypto industry. A reduction in the burnt tokens will have a negative effect and could damage the shared bullish ETH outlook.
This revelation comes as ETH prices struggle. At the time of press, ETH is trading at $2,228 after a drop of nearly 7% in the last 24 hours. It remains unclear what has triggered to downfall but it seems to be part of a short-term pattern. On the weekly, charts the token has extended its losses by around 12%. In part, the drop results from fading optimism surrounding crypto ETFs.
Nevertheless, the U.S. Securities and Exchange Commission (SEC) is expected to make a ruling on Fidelity’s Ethereum spot ETF by March 5, 2024. Initially, the agency was supposed to approve, reject, or delay the filing by January 20th and exercised its right to delay, allowing it an additional 45 days to review.
Experts anticipate approval after the agency approved a Bitcoin spot ETF earlier this month. According to Kaiko Research analysis, the approval of a spot Ethereum ETF by the SEC could be the crypto asset’s “strongest narrative.” With billions in institutional investment expected to flow into the altcoin, a new all-time high could be on the horizon.
With Bitcoin witnessing a spectacular rally in the first couple of days of an ETF approval, experts foresee a similar narrative for ETH. However, there is fear that the profits will be shortlived similar to the Bitocin pattern which has dropped from a high of $49,000 to a low of $40,000 in a couple of weeks.
