Ethereum price rallies as supply reaches deflationary levels
Ethereum's annual issuance is at 0% with supply growth decreasing. What does this mean for the dominant layer-1 blockchain?
Positive price action over the last 24 hours has seen Ethereum's price rise close to 10% to a daily high of AUD$2,355 (US$1,507), leading the way for other major altcoins to post double-digit gains.
Bitcoin has also witnessed a 4.2% spike to the upside, trading at about AUD$31,500 (US$20,000). This pushes the total crypto market cap back towards US$1 trillion.
ETH has spent the last month trapped in a tightly held 10% trading range post-Merge. This stagnant growth surprised many traders expecting a price rise following the blockchain's successful transition to a proof-of-stake (PoS) network.
Although it's been a patient wait, the worst may now be behind us. Perhaps the bottom is finally in for the world's second-largest crypto.
Ethereum's overnight price spike likely comes down to 2 key factors that together have led to the market breaking out of its month-long range.
The US Dollar Currency Index (DXY) has again traded down, dropping 3% in the last month following a rejection of US$115 – its highest-traded price in over a decade.
A weakened US dollar equates to higher buying strength for other asset classes, including crypto.
Major stocks have also responded to the DXY's drop, with the S&P 500 Index (SPX) posting 1% overnight gains and trading at US$3,859.
Post-Merge, the Ethereum annual issuance rate plummeted from 4% to 0%. In addition, burn fees appear to be steadily increasing, with over 2,000 Ether burned over the past 24 hours.
0% inflation combined with burn rates means Ethereum is and looks to remain deflationary.
A decreasing supply and a continued market demand may result in a lack of tradeable ETH on exchanges and push prices further to the upside as traders pay a premium to enter the market.
What's next for Ethereum?
The DXY has outperformed the crypto market over the last few months, gaining over 10% since June.
However, if the DXY continues to lose strength – potentially breaking down a year-long upward trajectory – investors may opt to trade in their fiat holdings in favour of cryptocurrencies and other tradeable stocks.
The annual ETH issuance rate remains steady at 0%. But with burn rates increasing, the world's second-largest crypto may reach a deflationary status not yet seen.
A break and hold above US$1,500 would be highly bullish for Ethereum and likely restore some much-needed faith in the crypto space.
If things play out favourably, the combination of these factors may be the catalyst that sparks a shift in market sentiment and a potential bull run in the lead-up to 2023.
Disclosure: The author owns a range of cryptocurrencies at the time of writing.