Key Points
- Ethereum’s supply growth has slowed, potentially returning to deflation by 2025.
- Increased activity on Ethereum’s Layer 2 networks could strengthen long-term price outlook.
The supply growth of Ethereum (ETH) has been slowing down.
This is following a recent 50 basis points rate cut, which reduced the growth to between 30K and 40K ETH per month.
Potential Return to Deflation
If the current trend persists, Ethereum’s supply could become deflationary by 2025.
This could occur even before it reaches its pre-merge levels.
Considering the possibility of more rate cuts, the inflation rate may decrease further, potentially driving future price growth.
Ethereum’s supply has a significant impact on its market dynamics.
The recent rate cut has resulted in a decrease in ETH’s inflation rate, suggesting the supply could reach pre-merge levels in 2025.
Increased Demand for Ethereum
The shift to deflation could boost the demand for ETH, particularly as monetary policies continue to change.
As interest rates decrease, more users and investors might be attracted to Ethereum’s network.
This could increase overall demand, potentially pushing the price higher.
A reduced supply coupled with a steady or rising demand could support a long-term bullish outlook for Ethereum.
In addition, the number of weekly active addresses on Ethereum’s Layer 2 networks is increasing rapidly.
Currently, these active addresses have reached around 9.65 million, with predictions suggesting this number could multiply by 10 in the next few years as Web3 adoption grows.
This increase in activity on Layer 2 networks indicates a growing demand for faster and cheaper transactions on Ethereum, aiding the network to scale without compromising decentralization.
Increased user activity typically correlates with higher transaction fees, further reducing the overall ETH supply through burning mechanisms like EIP-1559.
Impact on Ethereum’s Price
These developments have a significant impact on ETH’s price.
The current reduced inflation rate, combined with increased activity on Layer 2s, strengthens the long-term price outlook for Ethereum.
If the deflationary trend continues into 2025, it could result in higher ETH prices, especially as the supply decreases while demand remains high.
Meanwhile, ETH/BTC has been experiencing some fluctuations.
Ethereum has been lagging behind Bitcoin in recent months, leading some analysts to believe that ETH/BTC could decrease in the short term.
The pair is currently trading within the 0.03-0.04 range, and a bottom may form at 0.038 or even 0.036.
Although the ETH/BTC pair may remain weak through the end of 2024, the long-term outlook for ETH/USD is stronger, with 2025 expected to bring a rebound.
Despite the short-term weakness in the ETH/BTC pair, ETH’s fundamentals suggest that its price could rise higher in 2025, making it a solid long-term bet for investors.
