The king altcoin has been under correction over the past three months, and derivatives data signifies professional investors are almost ready to throw in the towel. In the interim, with Ethereum valuation depleting below $2.8k, veterans have been pondering over the ETH burn event.
ETH price faced a solid rejection at $3,600 on Jan 5th owing to the US Fed’s decision to taper the interest rate hikes in 2022. The Open Interest flushes out on the other hand is likely to pull down the price. If OI vanishes another 2 billion in the next couple of days then the star altcoin would undergo below $2k.
Followed by the looming overhead, the ecosystem has issues of its own. Specifically, higher average transaction fees of over $40. One more addition to the list is Ethereum’s deflationary supply.
Ethereum’s Deflationary Supply To Hurt Its Price Action?
Ethereum burn event has resulted in the burning of $33.5 billion worth of Ether since the EIP-1559 upgrade. Specifically, in the last 30 days, a total of 346,523 ETH was burnt. In addition, its reserves on crypto exchanges have been depleting gradually and are likely to drop below 5 million in the near future.
Updated exchange reserves chart from the Cryptoquant highlights the gradual depletion in the exchange reserves since December 2020. In just one year, the reserves are down by $26 million to $16.5 million. Hence, along with the burn event if the rate of coins leaving the exchanges continues at the same pace. Then by the next couple of years, there will be no coins left to buy over the exchanges.
It could be clearly observed from the above chart that the traders might be moving their coins to cold wallets to earn passive income through staking. Whilst the total value stacked is reaching new ATHs, the asset is almost becoming stable with a weakening in its volatility.
Collectively, being deflationary might impact Ethereum in terms of price action and its market status. However, the ETH merger is about to happen by July, which further aims to reduce the issuance by 90%. The ecosystem should also need to focus on bringing changes in issuance events to fight going deflationary and to make sure its available for the future.
