Ethereum Becomes Deflationary, First Time After Merge

It is possible for Ethereum’s price to still dip lower because of the technical setup around it. Also because of the reduced number of whales.

 Higher Burn Rates

Ethereum’s annual supply rate dropped to under zero for the first time since the Merge was completed. The Merge was Ethereum’s movement from the proof-of-work protocol to the proof-of-stake. What is the reason for the current deflation? It is the increased on-chain activities in the midst of the massive crypto market crash.

As of the 9th of November, more Ethereum tokens have been burned than those created as part of the platform’s fee-burning strategy. In other words, the more there are transactions on-chain, the more Ethereum transaction fees are burned. The Ethereum network has burned tokens at a rate of 773,000 versus issuing 603,000 within 30 days. Therefore, the Ethereum market supply is reducing by 0.14% annually.

 Generally speaking now, the network has burned up to 2.73 million tokens since the beginning of the fee-burning. It started fully in August 2021. That brings it down to burning about 4 Ethereum tokens every minute.

 The recent FTX collapse has caused traders to move their tokens in and out of various exchanges. The result of that is increased Ethereum transaction fees. It has jumped to the highest level it has seen since last May.

 Holding Differentials

Glassnode reported that almost 1 million Ethereum tokens have moved out of exchanges this November alone. But some analysts consider the Ethereum deflation as a sign of coming bullishness. They expect it to boost the asset’s general scarcity.

 Ethereum’s price fell by almost 20% M-to-D and currently trades at $1,250. It recently recovered from $1,075. The asset’s price action has equally gone into the breakdown phase of its former symmetrical triangle.

This has the potential of pressing the price lower by 50% from its present state. Other arguments that bearishness looms came from the recent drop in whale holdings. The November downturn came at the same time when supply dropped from large account holders.

Most of them held between 1 million to 10 million tokens.On the flip side, addresses that hold between 1,000 and 10,000 tokens have increased in the course of the price fall. This could either mean that Ethereum wallets holding 1,000,000 reduced their tokens. Or those who held between 10-100 bought the dip.