Thursday, 23 March 2023

Crypto News

Ethereum’s deflation accelerates as Shanghai upgrade looms — Can ETH price avoid a 30% drop?

Ethereum's deflation accelerates as Shanghai upgrade looms — Can ETH price avoid a 30% drop?

The price of Ethereum’s native token, Ether (ETH), has surged by more than 40% year-to-date to around $1,750, the highest level in seven months. However, ETH price is not out of the woods yet despite several bullish cues such as the Shanghai upgrade in the pipeline. 

Ethereum price bull trap?

Ether’s rise has appeared primarily in the wake of similar upside moves elsewhere in the crypto market, responding to lowering inflation that reduces the Federal Reserve’s likelihood of raising interest rates aggressively.

At the same time, warnings about an imminent bull trap in the risky markets have emerged, which may wipe out their recent profits. Ethereu, due to its long-term correlation with stocks and Bitcoin, faces similar risks.

Let’s take a closer look at  several potential bullish and bearish catalysts for the price of Ethereum below.

ETH becomes most deflationary since Merge

The issuance rate of Ether has dropped to its lowest level since the network’s transition to Proof-of-Stake (PoS) via “the Merge” in September. 

On Feb. 20, Ether’s annual supply since the Merge shrunk to -0.056%. In other words, the Ethereum network had been minting fewer ETH tokens than were removed from the supply in the past five months.

Ether supply since Merge. Source: Ultrasound Money

Investors typically perceive a cryptocurrency with a fixed supply or deflationary issuance rate as bullish in the longer term. 

Ethereum’s supply is currently around 120.50 million, but there is technically no max supply. The London hard fork in August 2021, however, introduced a fee-burning mechanism that added deflationary properties to Ether’s tokenomics.

As a result of this upgrade, the higher the Ethereum network’s transaction fees at any given time, the more Ether will be “burned” or removed from the supply forever.

Interestingly, Ethereum’s median gas…

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