Ethereum’s Growing Supply and Its Effect on Price
The recent increase in Ethereum’s supply has raised concerns among long-term investors, as it goes against the anticipated benefits of the transition to Proof of Stake (PoS). The burning mechanism and PoS were expected to decrease the supply of Ether, driving up its price. However, since April 14, the circulating supply has been steadily increasing, contradicting these expectations.
The rise in supply poses a problem for price growth, as the combination of expanding supply and new demand requires significant price hikes. Additionally, the growth in supply indicates a decline in network activity. User activity on the Ethereum network has dropped by 37% recently, with daily transactions decreasing by 15%.
This decline in network activity also results in a reduced amount of burned Ether. As more Ether enters circulation than is burned, the circulating supply continues to increase, putting an end to Ethereum’s deflationary narrative.
Given these developments, investors may need to adjust their expectations regarding Ethereum’s price performance. Despite the approval of an ETF, Ethereum has not performed as expected. Its price has dropped by 15% in the past 30 days and currently stands at $2,720. The ever-increasing supply suggests that higher risk appetite among investors is necessary. The direction of Ethereum’s price will also be influenced by Bitcoin’s fluctuations.
If there is an upward movement, ETH could reach $2,867, whereas a downturn could bring it down to $2,535. Although the total volume has increased by 10% compared to the previous day, standing at $60 billion, it is still not sufficient for a strong upward trend.