Ethereum network activity struggles to keep up with bullish bias

• Ethereum’s London hard fork revives a bullish bias among retail traders, the altcoin’s price struggles to keep up with the trend.
• On-chain analysts raise concerns as ETH price hovers around $3000 despite market-wide euphoria.
• Josh Cincinnati, developer advocate BlockCypher states that ETH supply is now tied to gas demand; therefore, EIP 1559’s implementation does not imply that ETH is now a deflationary asset.

Investor appetite for Ethereum has increased after EIP 1559 went live, outlook turns bearish with a drop in network activity.

Ethereum’s expected price rally to $4000 took a detour after hitting a 3-month high

Ethereum is under the spotlight after the long-awaited London hardfork. The altcoin’s price hit a high of $3184 over the weekend. This coincided with increased Ethereum-related social media mentions that hit a 3-month high last week. The social media mentions mirrored the levels seen at the peak of Ethereum’s May 2021 rally based on Santiment data. 

Unlike social media mentions, network activity did not react as expected to the EIP-1559 launch and the London hardfork. A drop in the number of unique addresses interacting (sending or receiving) ETH on the network has dropped by over 11% in the last week. ETH’s network metrics opposed the bullish narrative that led to mass market euphoria and a rally to $3184. 

Ethereum daily active addresses

Sustained price rallies in Bitcoin are often associated with an uptick in address activity. By applying this trend to Ethereum, the current price rally may not be a prolonged one. Address activity is considered a proxy for the demand of the crypto on exchanges. The latest drop in activity on the Ethereum network can be regarded as a drop in demand and a likely bearish divergence in price. 

Ethereum’s price rally is likely on a detour from the target of $4000 since traders holding ETH are not as actively engaged (trading) as expected. 

Market-wide euphoria and a bullish outlook for ETH price relied heavily on Ethereum turning into a deflationary asset. Josh Cincinnati, developer advocate BlockCypher recently stated that Ethereum may not be a deflationary asset yet, since supply is tied to gas demand. Cincinnati explained his stance on ETH in his recent tweet, 

Not all experts agree with Cincinnati’s bearish outlook on Ethereum. Raoul Pal, a co-founder of Real Vision, a financial media company, recently shared his bullish outlook on Ethereum. Pal said:

The Ethereum that is in free float is falling every day. And now we’ve just got the 1559 token out of the way. Most people are going to start staking the [ETH] they hold, and there’s no [ETH] available, and demand is going exponential. Exponential demand meets fixed supply equals exponential price rise. One of the best setups I’ve ever seen.