Ethereum is positioning itself for a September transition to a deflationary version 2.0, which is expected to ultimately consume up to 99.5% less energy than the current version supporting the 'Proof of Work' consensus and putting an end to mining activity. Will the cessation of mining cause a supply shock?
- Ethereum's transition to PoS could involve a supply freeze of up to 80 / 90%, which is roughly equivalent to three Bitcoin halvings taking place simultaneously;
- In the past, halvings (halving supply and rewards for miners) have supported Bitcoin's rising valuations (2012, 2016, 2020) and each time took place just before a new ' cryptocurrency bull market'. Hence the idea of Bitcoin's so-called halving cycles, which are now one of the most important analytical indicators for cryptocurrency bulls;
- If Ethereum reacts in a similar way to Bitcoin to a drastic reduction in supply, the transition to PoS could involve a spike in valuation, caused by a change in the operating conditions of demand in an environment of limited supply;
- Cryptocurrencies belong to a risky asset class that is not favored by high inflation and declining risk sentiment. A 'merge' may pass without an upward echo if market circumstances keep demand for risky assets low. A noteworthy factor creating supply and demand in the ETH market will be tomorrow's US inflation reading. A weaker inflation reading will support cryptocurrency valuations as expectations for a large interest rate hike by the Fed fall.
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Ethereum supply has continued to increase since January 2022, updating EIP-1559 amid limited cryptocurrency demand has not made Ether a deflationary asset.... However, the record-holders remain Avalanche and Solana, whose supply has increased by up to a dozen percent. Source: Kraken Intelligence
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We can see that the difficulty of inversion is down nearly 22%, indicating a gradually expiring' hashrate i.e., the computing power of the network. Miners' revenues are now only 30% of the annual average. The data indicates that miners of the Ethereum network, as 'The Merge' approaches, are beginning to migrate to other ecosystems or divest themselves of their hardware, which may find use in gaming or AI. Version 2.0 will ultimately put an end to miners' activity in the Ethereum blockchain. The news is positive for Ethereum investors, who are expecting a successful 'merge' in September, as it indicates that miners involved in the ETH network are also pricing the merge as likely. Source: Glassnode
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It has been 819 days since Bitcoin's last halving, which means that the major cryptocurrency is now closer to its next halving, estimated to occur in the first half of 2024. Bitcoin's increases in the past have usually started a year or so before halving, when the market starts 'buying under the event'. If the scenario repeats itself again, Bitcoin's price shouldn't rise out of the bull market until next spring. Source: HalvingTracker, Twitter
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Ethereum price chart, H4 interval. The second-largest cryptocurrency failed to break below the 23.6 Fibo retracement of the downward wave that began in November 2021, and ETH is currently struggling to defend levels near $1650. Source: xStation 5
