Over the last half-year, Ethereum’s [ETH] supply has been steadily increasing by approximately 60K ETH monthly. However, in the aftermath of a recent 50 basis points rate reduction, this growth has notably decelerated to a range of 30K to 40K ETH per month.
If this pattern persists, Ethereum’s supply may revert to a deflationary state by the beginning of 2025, prior to surpassing its pre-merge levels. With further rate cuts on the horizon, the inflation rate might continue to decline, paving the way for potential future price escalation.
The quantity of Ethereum available is a crucial component in its market dynamics. Following the rate cut, ETH’s inflation rate has fallen, indicating the likelihood of the supply reaching pre-merge levels by 2025.
This shift towards deflation has the potential to stimulate heightened demand for ETH, particularly as monetary strategies undergo continuous transformation.
With diminishing interest rates, more participants and investors might gravitate towards Ethereum’s network, amplifying overall demand and potentially propelling prices upwards.
The diminished supply coupled with stable or growing demand could bolster a positive long-term perspective for Ethereum.
In addition to alterations in supply, the number of weekly active addresses on Ethereum’s Layer 2 networks is experiencing a surge.
Presently, these active addresses have surged to approximately 9.65 million, with forecasts indicating a ten-fold increase in the coming years as Web3 adoption expands.
This upsurge in Layer 2 network activity mirrors the escalating desire for expedited and cost-effective transactions on Ethereum, facilitating network expansion without compromising decentralization.
Greater user engagement typically corresponds to increased transaction fees, further diminishing the overall ETH supply via mechanisms like EIP-1559.
Impact on ETH Price
The implications of these developments on ETH’s price are substantial. The existing reduced inflation rate alongside heightened activity on Layer 2s bolsters Ethereum’s long-term price projection.
If the trend towards deflation endures into 2025, it could lead to elevated ETH valuations, particularly as supply shrinks while demand remains robust.
A potential decline towards the range’s lower limit amid a rise in FVG and probable long position requests. Conversely, breaching the range’s upper boundary triggers short positions, yet a closure above the range signals no trading opportunities.
Meanwhile, fluctuations have been observed in ETH/BTC. Ethereum has recently lagged behind Bitcoin, with speculations suggesting a potential downturn for ETH/BTC in the short run.
The pair is presently operating within the 0.03-0.04 range, with a probable support level at 0.038 or even 0.036. Some anticipate 0.03 as the worst-case scenario, although a plunge to such levels seems improbable.
Despite potential short-term fragility in the ETH/BTC pairing, Ethereum’s fundamentals hint at a probable surge in the ETH/USD ratio in 2025, positioning it as a reliable long-term investment for stakeholders.