Ethereum Deflation Hits Record High (Here’s What That Means for ETH)

Mar 16

Written By Web3 Daily

Six months post-Merge, ETH supply deflation has hit a record high with the total ETH supply dropping by nearly 1% in the past 30 days.
Ethereum could continue to reduce its supply over time, as more folks use it, eventually becoming deflationary.
Assuming demand for ETH continues to grow, and supply continues to decrease - over time, that would suggest ETH prices are likely to go up.
If nothing else, at least ETH has the mechanism in place to become deflationary (something governments lack today) - and it's working!

Back in August 2021, a big update with a weird name was applied to Ethereum: The 'EIP 1559' update.

It gave Ethereum the potential to become 'ultra sound money,' by destroying (or 'burning') a little bit of ETH with every transaction.

Now, six months post-Merge, ETH supply deflation has hit a record high with the total ETH supply dropping by nearly 1% in the past 30 days.

With Ethereum’s current supply sitting at 120.457 million, the ETH burn rate has moved to 1,219,000.

The idea being that Ethereum could continue to reduce its supply over time, as more folks use it, eventually becoming deflationary.

And increased demand + shrinking supply, typically = higher prices.

Here's how that works:

Post Merge, Ethereum went from creating ~4.9M new tokens per year, to just 603K, in a matter of days...

This is because The Merge allowed Ethereum to process more transactions per second.

And more transactions = more ETH burned = a scarcer asset.

Combine that with the ability to earn interest on your ETH holdings, through staking (also a feature of The Merge update) and you have:

A cryptocurrency that is programmed to become more scarce (and most likely more valuable) over time, that you can also earn interest on.

We don't have a crystal ball, but we do have macroeconomic theory on our side.

(Man, that was a mouth full).

Assuming demand for ETH continues to grow, and supply continues to decrease - over time, that would suggest ETH prices are likely to go up.

At the same time, let's remember that the price of ETH today is over 60% down from its all-time high of $4,891 seen in November 2021.

(I.e. nothing is a sure thing in the world of crypto).

But, if nothing else, at least ETH has the mechanism in place to become deflationary (something governments lack today) - and it's working!

Web3 and crypto news, translated into plain English.

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