Recent market dynamics have again brought Ethereum’s supply into the spotlight and reiterated concerns about its inflationary trend. Earlier this year, Ethereum reached a significant milestone in its circulating supply, surpassing 120 million ETH and the number continues to grow.

Unlike other prominent cryptocurrencies such as Bitcoin and Cardano, which have fixed supply caps, Ethereum was designed with an unlimited supply of tokens. This fundamental difference makes Ethereum an inherently inflationary asset, one that has a continuously increasing supply.

On-chain data from Ultrasound.money has shed light on the growing supply of ETH in recent months amidst notable price fluctuations for the cryptocurrency. The most recent data indicates that the total supply of Ethereum has now reached approximately 120.28 million ETH.

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Over the past seven days alone, 16,039 new ETH tokens have been issued. This pace of issuance corresponds to an annual inflation rate of 0.70%. Interestingly, this data shows that 243,886 ETH has been created in the past four months since the Dencan upgrade in March.

What Does This Mean For Ethereum?

Ethereum’s inflationary mechanism is mostly counteracted by burning tokens. This burn mechanism was introduced as part of Ethereum’s London Hard Fork in order to introduce a deflationary mechanism to Ethereum.  This mechanism aims to reduce the overall supply of ETH by burning a portion of the transaction fees, thereby introducing a deflationary counterbalance. 

However, data from Ultrasound.money shows the burns are currently lagging behind issuance, and Ethereum is now on an inflationary trajectory. Particularly, 2,028 ETH were burned in the past seven days, compared to 18,075 ETH issued in the same timeframe. Such a sustained uptrend in supply growth could cause downward pressure on the price of ETH in the case of a decline in demand.

At the time of writing, Ethereum is trading at $2,615 with no significant gains or losses in a 24-hour timeframe. Looking at a broader seven-day price action shows Ethereum has largely traded within a range of $2,750 on the upper end and $2,530 on the lower end. The latest price action saw Ethereum rebounding at $2,540 in the past 12 hours. If this continues, Ethereum could possibly push up and retest $2,750 in the next few hours.

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According to the latest figures from Greeks.live, approximately 184,000 ETH options are set to expire today. These options represent a substantial nominal value of $470 million and are characterized by a put-call ratio of 0.8 and a maximum pain point of $2,650. This high put-call ratio value means market participants are currently buying more put options than call options, which in turn suggests a bearish sentiment. 

Pictured image from Dall-E, chart from Tradingview.com

Ethereum has seen its deflationary status once again in the limelight as the network continues to see a significant decline in the number of ETH tokens in circulation. This comes on the back of the belief that the bull run and some other factors could help uphold this trend. 

More ETH Goes Out Of Circulation

According to data from Ultrasound Money, Ethereum has seen a decrease in its circulating supply in the last seven days, with over 14,160 ETH going out of circulation. This is a result of over 30,700 being burned during this period while only just over 16,500 ETH have been issued during this same timeframe. 

This development continues a growing trend where the number of tokens being burned outpaces the number of tokens being issued. NewsBTC had reported earlier this month how over 106,000 ETH had been burned in the last 30 days (between November 4 and December 4). At the same time, only just over 70,000 ETH had been issued. 

This deflationary trend has been attributed to the increasing number of validators exiting the Ethereum ecosystem. This trend is said to have begun at the start of October. Glassnode noted that the average number of validators exiting per day surged from 309 to 1018 validators per day at the start of October. 

This isn’t the only contributing factor, as network activity on Ethereum has picked up significantly. According to data from Etherscan, the daily number of transactions on the network has stood over a million in the last seven days. This has caused a spike in gas fees, causing more ETH to be burned with the EIP-1559 protocol.  

ETH price rises above $2,200 | Source: ETHUSD on Tradingview.com

Ethereum Deflationary Trend Expected To Continue

It is no coincidence that network activity on Ethereum has picked up as many continue to position themselves ahead of the imminent bull run, which is projected to kickstart in 2024. The recent surge in the trading volume of non-fungible tokens (NFTs) on Ethereum has also been a big factor. This is expected to continue once the bull market takes its full course. 

Another factor to consider is the fact that more liquidity is expected to flow into the Ethereum ecosystem if the pending Ethereum Spot ETFs applications get approved. This would likely spark a further increase in the trading activity on the network as many will look to invest in the second-largest cryptocurrency by market cap. 

ETH investors will undoubtedly be delighted at the fact that the future trajectory of ETH looks bullish. One can expect the crypto token’s value to rise as it continues to maintain this deflationary status. The less ETH in circulation, the more valuable it likely will be. 

At the time of writing, Ethereum is trading at around $2,270, up by over 4% in the last 24 hours, according to data from CoinMarketCap. 

Featured image from Coinpedia, chart from Tradingview.com

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