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The transition to PoS led to a significant rise in ETH, but the trend was not favorable. Although we entered an upward trend, the ETH price faced changes on the supply side and remains far from its previous levels when BTC was at $60,000. So, is the supply increasing to a worrying extent?
Ethereum Supply and Inflation
ETH supply is unlimited. Unlike many cryptocurrencies like BTC, which has a 21 million limit, there are mechanisms that determine annual token inflation. If token demand exceeds annual inflation and long-term investors are sufficient, the price of an altcoin with unlimited supply can rise.
With the PoS transition, ETH supply did not become limited, but miner rewards were eliminated, and more reasonable staker rewards were introduced. Since a portion of the income from transaction fees is burned, strong network activity and high transaction fees led to a reduction in supply. Thus, we began to see negative inflation.
Now, this has changed. According to Ultrasoundmoney, ETH supply has risen to 120.28 million ETH. In the last 30 days, 77,091 ETH entered circulation. The current annual inflation has returned to positive levels, showing an inflationary trend at 0.583%.
The 30-day burn was 19,438 ETH, meaning the net excess in circulation was 57,653 ETH after subtracting this from the issuance figure. Although the burn mechanism introduced with the London Hard Fork created a deflationary environment for a while, the update that reduced transaction fees and made Layer2 solutions about 90% cheaper changed things.
What Will Happen to Ethereum (ETH)?
The inflationary environment seems to continue for ETH. Increasing interest in restaking platforms like EigenLayer accelerates the growth rate of supply along with rewards. EigenLayer’s total locked value increased by 11% in just one week. This and the growing interest in other platforms indicate that the contribution to the inflationary environment will continue.
The biggest advantage here arises from the rapid strengthening of demand through the ETH ETF channel. ETH issuers cannot stake and transfer this income to their customers, thus not contributing to the inflationary environment. Still, even in the worst-case scenario with 1% to 5% inflation, the sustainability of ETH price should not be massively negatively affected. Many cryptocurrencies have grown for years despite double-digit inflation, and considering ETF support for ETH, we should not see significant negative results in the medium term with increasing demand in secondary markets.
Of course, stories about deflation supporting the price and potential long-term supply shortages have evaporated in light of all the above details. This can be considered a loss of profit.
