Bitcoin is struggling to stay above $19,000, amid a weak opening for Wall Street indexes. Markets are waiting with bated breath for tomorrow's Fed interest rate decision:
- The market is currently pricing in 75 bps, but leaving the door open for a surprisingly hawkish 100 bps hike;
- At the same time, a 100bp hike seems relatively unlikely which could trigger a possible 'relief rally';
- Ethereum is still hovering below $1,350 and has not seen a rally Combined with the EIP1559 protocol implemented over a year ago as part of the London Hard Fork, Ethereum was expected to reach a deflationary supply (token burn higher than the inflow of new tokens). The issuance of ETH supply after The Merge was supposed to decrease by leaps and bounds, it was speculated, by as much as 90%.
Did this really happen? Below, analyzing Glassnode's charts, we will focus on the deflationary nature of Ethereum, which was supposed to be reached after the difficulty bomb and the network's move to Proof of Stake:
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Since the Beacon chain on Ethereum was created (December 2020), Ethereum has had two sources of net supply issues, the PoW chain and the PoS chain. In August of that year, the EIP1559 protocol via 'burnt network charges' helped to reduce the supply of the Proof of Work chain. This function has now been transferred to the new Proof of stake chain. The chart shows the daily inflation of ETH under various real and simulated conditions. It also shows the daily change in ETH supply since the implementation of the key EIP1559. The supply of new ETH tokens is marked in green, and we can see that it has fallen by leaps and bounds in the face of The Merge and the associated 'difficulty bomb'. However, actual deflation is still a long way away, having occurred only a few times so far. The Proof of Stake chain (in blue) is a simulation that assumes it originated with EIP1559. In fact, EIP1559 has been in operation for over a year, and Merge took place a few days ago. We can see that the chain of ETH issuance under Proof of stake is roughly 772 ETH per day versus nearly 12,500 ETH in Proof of Work. So it turns out to be true that the difficulty bomb has reduced ETH supply in a powerful way. Meanwhile, Ethereum is still inflationary which is due to low on-chain traffic and low network usage at the moment. Source: Glassnode
The Merge Happened on September 15. By September 19, the 'old' Ethereum Proof of Work chain would have issued about 48,400 ETH tokens. After the difficulty bomb went off and 'The Merge' was completed, the Proof of Stake chain issued 3893 ETH tokens, a massive reduction in supply of nearly 93% compared to the Proof of Work period. For about 12 hours after 'The Merge,' ETH actually reached deflationary supply. However, Ethereum is still inflationary due to the relatively low 'gas fees' or network costs that users of the Ethereum blockchain pay. By virtue of the fact that the network fees are still low, the EIP 1559 protocol (in operation since the summer of 2021) burns very small amounts of ETH. When network activity increases and internal fees rise, given the current more than 90% lower supply of new tokens Ethereum will be able to successfully achieve the deflation that investors expect. The key, however, will be the demand for Ethereum and the activity on the network (the one so far usually equated with a bull market, in which case it would surge). Source: Glassnode
- Based on on-chain data, we can confirm. Ethereum has indeed reduced supply by 90%, however, in a non-negative market environment, the network is still inflationary. However, an influx of capital into cryptocurrencies and an increase in adoption could reverse this trend very quickly
Ethereum chart, H4 interval. The cryptocurrency is moving in a downtrend and, despite the successful The Merge, has dived below the 200-session average, which runs around $1590. The RSI indicates levels close to oversold and, similar to the June period, we see a 'double bottom' formation on it, which outlined below 30 points, which could signal a strengthening of the demand side. Source: xStation5
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