Press Release Ethereum. Source: AdobePost-“shapella” upgrade optimism that briefly lifted the Ether (ETH) price to 11-month highs in the mid-$2,150s earlier this month has mostly faded.
Ether, the token that powers the smart-contract-enabled Ethereum blockchain, was last trading close to $1,900, still up around 4% for the month, but over 11% below earlier monthly peaks.
Despite the fact that the ETH have been taking a breather in the last few weeks, analysts remain optimistic on the cryptocurrency’s medium to long-term prospects.
That’s in part because macro conditions continue to shift in favor of blue-chip (high market cap, high trust) cryptocurrencies like Bitcoin and Ethereum.
Bank crisis concerns continue to bubble with First Republic just taken into FDIC receivership and the Fed’s tightening cycle, while having a little way to go yet, looks to be coming to an end soon.
That means blue-chip cryptos will likely continue to benefit from 1) safe-haven demand as a “alternative” form of money and 2) easing financial conditions (i.e. a lower US dollar and US bond yields).
But unlike Bitcoin, Ether can also rely on the support of two key deflationary tailwinds that are likely to drive significant price upside in the coming years.
ETH’s Supply Deflation Rate Keeps Rising
The rate at which the Ether supply is deflating continues to trend higher.
On Thursday, the Annualized EIP-1559 Burn Rate surpassed the ETH Issuance Rate by 1.753%, a week after the deflation rate nearly hit its annual peak a week earlier at 3.933%.
The net inflation rate has been negative more-or-less every day since the end of January, according to chart data presented by crypto analytics firm Glassnode.
When the deflation rate increases, that means that individual ETH tokens are becoming scarcer at a faster rate. Most analysts think this ought to boost the cryptocurrency’s price in the long run.
The rising deflation rate is linked to a rise in Ethereum network fees.
Network fees are split into two components. The first is a base fee that all users must pay to ensure that their transaction is accepted and processed on the blockchain.
There is then an optional tip that users can pay to have their transaction processed more quickly.
The Ethereum network automatically calculates the base fee, which rises at times of heavy network traffic.
Ethereum Improvement Proposal (EIP) 1559, which was implemented into the Ethereum code in the London hardfork in August 2021, requires that all of these base fees paid by users are then burned, removing the tokens from circulation permanently.
As a result, when the base gas fee rises, the rate at which Ether is burned also rises.
When this burn rate exceeds the ETH Issuance Rate, which is around 0.55%, the ETH supply will decline.
ETH is issued to the nodes and stakers that secure the Ethereum network.
The Supply of Unstaked ETH Tokens is Rapidly FallingThe (unstaked) ETH price is also likely to benefit from an ongoing, rapid drop in supply as more and more investors stake their ETH tokens to secure yield. » …
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