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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.

ETH range breakout – testing $1,500

ETH range breakout – testing US$1,500. | Image: TradingView

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.

Contributing factors

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.

DYX drops

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.

DXY rejection of $115 – correction towards the yearly trend

DXY rejection of $115 – correction towards the yearly trend. | Image: TradingView

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.

Deflationary ETH

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.

ETH annual issuance rate: 0%

ETH annual issuance rate: 0%. | Image: Messari

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.

Ether supply growth chart: -2,096 Ether (25/10/2022)

Ether supply growth chart: -2,096 Ether (25/10/2022). | Image: Etherscan

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.

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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