Ethereum Inflation Peaks Since 2022, ETF Launch May Ease Pressure
The Essentials in Brief
Ethereum, the second largest cryptocurrency by market capitalization, is currently experiencing rising inflationary pressure not seen since 2022. Despite the persistence of burning mechanisms to reduce the supply, the total supply of Ethereum has increased in recent months. However, the upcoming launch of Ethereum-based ETFs could introduce new dynamics into the market and potentially alleviate inflationary pressure.
Ethereum is becoming more inflationary
Since the network update in March 2024, the total amount of Ethereum has increased by over 112,000 ETH, representing the highest inflationary pressure since 2022. This increase is largely attributed to the effects of this update, which had a significant impact on Ethereum’s economic model.
Ethereum does not let go of burns
Despite the observed inflation trend, the overall balance of Ethereum remains deflationary since the implementation of the Merge. Over 1.7 million ETH have been burned through transaction fees, while the total new addition since the Merge is over 1.3 million ETH. This results in a net reduction of over 344,000 ETH that were removed from circulation. This dynamic continues to underscore the attractiveness of Ethereum as a deflationary asset.
Ethereum ETFs are imminent
The prospects for the launch of an Ethereum ETF look promising. VanEck, a major player in the ETF market, has taken a decisive step by filing a Form 8-A for its Ethereum Trust. This suggests an imminent launch of an Ethereum ETF, which could significantly influence market conditions for ETH.
How it could affect ETH
The introduction of Ethereum ETFs could increase the demand for ETH from both institutional and private investors. This increased demand, combined with Ethereum’s existing deflationary mechanisms, could absorb the oversupply and strengthen Ethereum’s deflationary tendency.
Our Assessment
The current inflationary trend in Ethereum undoubtedly presents a challenge, but the upcoming launch of ETFs could herald a new era for the cryptocurrency. By facilitating access for a broader spectrum of investors, these ETFs could not only increase demand, but also help to reduce inflationary pressure. It remains to be seen how these developments will impact Ethereum’s price and position in the crypto ecosystem.
Sources: Ultrasound Money, Bloomberg
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