Recent market dynamics have again brought Ethereum’s supply in the spotlight and reiterated concerns about its inflationary tendency. Earlier this year, Ethereum reached a major milestone in its circulating supply, surpassing 120 million ETH and that number continues to grow.
Unlike other leading cryptocurrencies such as Bitcoin and Cardano, which have fixed supply caps, Ethereum was designed with an unlimited supply of tokens. This fundamental difference makes Ethereum a inherently inflationaryt, the one whose supply is continually increasing.
On the channel data of Ultrasound.money highlighted the growing supply of ETH over the past few months amid significant price fluctuations for cryptocurrency. The most recent data indicates that the total supply of Ethereum has now reached approximately 120.28 million ETH.
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In the last seven days alone, 16,039 new ETH tokens were issued. This issuance rate corresponds to an annual inflation rate of 0.70%. Interestingly, this data shows that 243,886 ETH have been created in the last four months since the Dencan upgrade in March.
What does this mean for Ethereum?
Ethereum’s inflationary mechanism is primarily countered by token burning. This burning mechanism was introduced as part of Ethereum’s London hard fork in order to introduce a deflationary mechanism into Ethereum. This mechanism aims to reduce the overall supply of ETH by destroying a portion of transaction fees, thereby introducing a deflationary counterbalance.
However, data from Ultrasound.money shows that burns are currently lagging behind issuance, and Ethereum is now on an inflationary trajectory. Notably, 2,028 ETH have been burned in the last seven days, compared to 18,075 ETH issued in the same period. Such a sustained upward trend in supply growth could lead to downward pressure on the ETH price in the event of a drop in demand.
At the time of writing, Ethereum is trading at $2,615 with no significant gains or losses over a 24-hour period. A broader look at the seven-day price action shows that Ethereum has largely traded in a range of $2,750 at the upper end and $2,530 at the lower end. The latest price action has seen Ethereum bounce back to $2,540 over the last 12 hours. If this continues, Ethereum could possibly push up and retest $2,750 in the coming hours.
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According to the latest figures of Greeks.live, about 184,000 ETH options are about to expire Today, these options represent a substantial nominal value of $470 million and are characterized by a put/call ratio of 0.8 and a maximum pain point of $2,650. This high put/call ratio means that market participants are currently buying more put options than calls, which in turn suggests bearish sentiment.
Image of Dall-E, chart from Tradingview.com
