Key Points
- Ethereum (ETH) has shifted from a deflationary to an inflationary trend recently.
- Despite this, the hope is that demand for ETH will increase with the introduction of Ethereum exchange-traded funds (ETFs).
Ethereum, once known for its deflationary nature, has recently been experiencing a more inflationary trend.
ETH, which was trading at approximately $3,300 at the time of writing, has seen its overall supply increase despite the continued burning of ETH as part of its transaction fee model introduced in EIP-1559.
Ethereum’s Inflationary Shift
The inflationary trend in Ethereum’s supply has reportedly reached its highest level since 2022, especially after its network upgrade in March.
Data from Ultrasound Money reveals that the total supply of ETH has expanded by over 112,000 ETH in the past four months.
This increase in supply is largely attributed to the effects of the upgrade, which was implemented on 13th March and had a significant impact on the network’s economic model.
Continued Burning of ETH
Despite the recent inflationary trends in Ethereum’s supply due to the upgrade, the overall balance since the Merge’s implementation remains deflationary.
Over 1.7 million ETH have been burned due to transaction fees, according to Ultrasound Money, while the total new supply added since the Merge is over 1.3 million ETH.
This results in a net reduction of over 344,000 ETH being removed from circulation.
The ability of this mechanism to outweigh the supply increase from the upgrade has maintained ETH’s appeal as a deflationary asset.
Such dynamics are crucial for its long-term valuation, as the reduction in supply, assuming steady or increasing demand, can lead to an appreciation in ETH’s market price and make it an attractive hold for investors.
Prospects of Ethereum ETFs
The prospects for the launch of an Ethereum ETF appear more promising, as highlighted by Bloomberg ETF analyst Eric Balchunas.
He noted that VanEck, a significant player in the ETF market, has taken a crucial step by filing an 8-A form for their Ethereum Trust on 26th June.
This form is essential for corporations looking to issue securities on national exchanges, signaling a readiness to proceed with the ETF.
Eric Balchunas pointed out the strategic timing of this filing, drawing a parallel to VanEck’s previous actions with their Bitcoin spot ETF, which was filed exactly seven days before its launch on 11th January.
This pattern suggests that the ETH ETF might be following a similar timeline, potentially indicating an imminent launch.
The introduction of Ethereum ETFs could significantly impact the market dynamics for ETH.
By facilitating broader and more regulated access to ETH for institutional and retail investors, these ETFs could increase demand for ETH.
This heightened demand, coupled with Ethereum’s existing deflationary mechanisms, could absorb excess supply and enhance Ethereum’s deflationary trajectory.