Ethereum could experience bullish run, ETH ‘ultrasound’ money narrative at risk

Ethereum (ETH) price action on Wednesday shows it could be gathering momentum for a rally as a recent report from CryptoQuant reveals its ultrasound money narrative is at risk. Also, the number one altcoin's co-founder, Vitalik Buterin, and co-authors have published Ethereum Improvement Proposal (EIP) 7702 as an alternative to EIP-3074.

Read more: Ethereum resume sideways move as Grayscale files to withdraw Ethereum futures ETF application with the SEC

Daily digest market movers: Ultrasound money, EIP-7702, Ethereum Foundation

Ethereum is set to see interesting updates on its blockchain following recent developments. Here are key market movers for the top altcoin:

A recent report by CryptoQuant highlights that Ethereum is becoming inflationary following the Dencun upgrade in March. After the Merge that saw Ethereum transitioning from a Proof-of-Work (PoW) to a Proof-of-Stake consensus mechanism, the network began burning gas fees at a significant rate that saw a significant reduction in the growth of ETH's circulating supply.

However, since the Dencun upgrade, when the introduction of "blobs" reduced Ethereum's network activity to boost its scalability and reduce user fees, the amount of gas fees burned has reduced significantly.

"Before the Dencun upgrade, the higher network activity on Ethereum meant higher fees burned and hence less ether supply. However, after the Dencun upgrade, the total amount of fees burned has decoupled from the network activity," noted CryptoQuant. As a result, this puts ETH's 'ultrasound' money narrative at risk since its circulating supply would begin increasing over time.

"We conclude that, at the current rate of network activity, Ethereum will not be deflationary again, and the narrative of 'ultrasound' money has probably died or would need much higher network activity to come back to life," said CryptoQuant.

Furthermore, following several concerns raised about EIP-3074, which was considered for inclusion in the upcoming Pectra upgrade, Ethereum co-founder Vitalik Buterin and co-authors Sam Wilson, Ansgar Dietrichs and Matt Garnett proposed EIP-7702 as an alternative.

EIP-7702 introduces a new transaction type that would allow externally owned accounts (EOAs) to temporarily act as smart contracts during a transaction. Like EIP-3074, the new proposal would enable better ways to abstract gas fees, batch transactions, and improve the user experience. However, it goes further by improving compatibility with the ERC-4337 standard for smart contract wallets — an issue with EIP-3074 — and being more future-proof.

Some crypto community members have speculated that EIP-7702 would replace EIP-3074 in the upcoming Ethereum Pectra upgrade. One X user commented, "I think it would probably make more sense to include in Pectra than 3074."

Fireblocks' VP of Technology Arik Galansky also commented on the proposal saying, "It's a long while since Ethereum introduced changes that are user-oriented rather than scaling-oriented and this one is right on point."

Also read: Ethereum traders show uncertainty, SEC delays decision on Invesco's ETH ETF application

Meanwhile, the Ethereum Foundation appeared to be dumping ETH again on Wednesday following a transfer of 1,000 ETH worth $3 million to middle multisig address 0xbc9, according to data from Spot On Chain.

This transfer is the latest action in a larger trend where the Ethereum Foundation has sold 1,766 ETH for 4.81 million DAI stablecoin at ~$2,725 since the beginning of 2024. The ETH sales, done in small batches through the same middle multisig address 0xbc9, often coincide with brief Ethereum price declines, noted Spot On Chain.

ETH technical analysis: Ethereum could be gathering momentum for a bullish run

The market remained quiet on Wednesday as Ethereum continued trading around the $3,000 mark. Despite the calm market, ETH derivatives volume in May has risen higher — close to 60% — than that of Bitcoin, according to QCP.

Read more: Ethereum could see a brief rally despite Michael Saylor's jab at ETH ETFs

The reason for the increase may be the market pricing in volatility over the Securities & Exchange Commission's (SEC) upcoming decision on Van Ecks' spot ETH ETF application on May 23, noted QCP. This also explains why the market is slightly tilted toward a downward movement as many expect the SEC to deny spot ETH ETF applications.

While current price action indicates ETH may continue a horizontal movement in upcoming weeks, historical data suggests the largest altcoin could be gathering momentum for a bullish run. Considering ETH has remained in the $2,852 to $3,300 range for nearly a month, it could attempt a sustained breakout above the upper level of the range if it sees a slight bullish trigger.

ETH/USDT 4-hour chart

Onchain data also shows most whales have been accumulating ETH around this range in anticipation of a price rally. A bearish event could see it break below the lower level of the range briefly, presenting a buying opportunity.

Ethereum is trading at $3,013 on Wednesday, May 8, down 0.7% on the day.