Ethereum is currently experiencing a notable surge in its overall supply, nearing levels not seen in almost four years. This increase in supply is impacting Ethereum’s ability to generate significant gains, especially when compared to Bitcoin and other leading alternative cryptocurrencies.
Rising ETH Supply Reaches Near Two-Year High
Recent data from CryptoQuant reveals that Ethereum’s total supply has risen to 120,501,906, reaching its highest point since February 2023. If this upward trend persists, Ethereum could soon return to pre-Merge supply levels.
The Ethereum Merge, which transitioned Ethereum from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) model, aimed to make ETH deflationary by reducing its daily issuance substantially. Despite this, Ultrasound Money data indicates a substantial increase of 45,724 ETH in just thirty days, potentially leading to bearish market movements.
Reduced Validator Count Raises Concerns
Ethereum’s PoS system relies heavily on validators who stake ETH as collateral to validate transactions. However, over the past three months, the number of validators on the network has decreased by approximately 2%, currently standing at 1,057,356.
This decline hints at an increase in unstaking activities, contributing to the growing supply issue. According to Validator Queue, the volume of staked ETH now represents 27% of Ethereum’s circulating supply.
Impact of Decreased Mainnet Activity
Alongside reduced ETH staking demand, decreased activity on the Ethereum mainnet is also a significant factor behind the rising supply. Each transaction on Ethereum incurs a base fee in ETH, which is subsequently burned to make ETH deflationary.
However, lower mainnet activity results in fewer tokens being burned, causing the overall supply to rise. L2Beat data indicates a substantial shift in activity from the Ethereum mainnet to layer two networks, with transaction counts on Base exceeding Ethereum’s significantly.
This transition to layer two networks could impede the burning process, affecting the circulation of ETH in the market.
ETH/BTC Ratio Hits a Multi-Year Low
As Ethereum grapples with supply concerns, Bitcoin continues to outshine the altcoin market. The ETH/BTC ratio has dropped to 0.02996, marking its lowest point since March 2021.
Technical analysis shows Ethereum trading within a descending parallel channel on its weekly chart. With a breach below the lower trendline, Ethereum signals a downtrend and the possibility of setting new lows.