Ethereum miners dump 30K ETH, stonewalling ‘ultra sound money’ deflation narrative

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Ethereum’s switch to proof-of-stake (PoS) on Sept. 15 failed to extend Ether’s (ETH) upside momen­tum as ETH min­ers added sell pres­sure to the market. 

On the dai­ly chart, ETH price declined from around $1,650 on Sept. 15 to around $1,350 on Sept. 20, an almost 16% drop. The ETH/USD pair dropped in sync with oth­er top cryp­tocur­ren­cies, includ­ing Bit­coin (BTC), amid wor­ries about high­er Fed­er­al Reserve rate hikes.

ETH/USD dai­ly price chart. Source: TradingView

Ethereum remains inflationary

The Ether price drop on Sept. 15 also coin­cid­ed with an increase in ETH sup­ply, albeit not imme­di­ate­ly post-Merge. 

Rough­ly 24 hours lat­er, the sup­ply change flipped pos­i­tive once more, pour­ing cold water on the “ultra sound mon­ey” nar­ra­tive due to a defla­tion­ary envi­ron­ment that some pro­po­nents expect­ed post-Merge. 

Pre-Merge, Ethereum dis­trib­uted around 13,000 ETH per day to its proof-of-stake (PoW) min­ers and about 1,600 ETH to its PoS val­ida­tors. But the rewards to min­ers dropped after the Merge went live by rough­ly 90%. 

Mean­while, val­ida­tors receiv­ing Ether rewards now only make 10.6% of the pre­vi­ous amount. As a result, Ether’s annu­al emis­sions have dropped by around 0.5%, mak­ing ETH less infla­tion­ary, and per­haps even defla­tion­ary under cer­tain circumstances.

Still, the Ether sup­ply has been ris­ing at an annu­al rate of 0.2% after the Merge, accord­ing to data pro­vid­ed by Ultra­sound Money. 

Ether sup­ply rate after the Merge. Source: Ultrasound.Money

The main rea­son behind the grow­ing sup­ply is low­er trans­ac­tion fees.

Notably, Ethereum made a change to its pro­to­col in August 2021 that intro­duced a fee-burn­ing mech­a­nism. In oth­er words, the net­work start­ed remov­ing a por­tion of the fee it charges for each trans­ac­tion per­ma­nent­ly. This sys­tem has burned 2.6 mil­lion ETH since going live.

Data shows that the Ethereum net­work’s gas fees must be around 15 Gwei to coun­ter­bal­ance the ETH reward­ed to val­ida­tors. But the fee was aver­ag­ing around 14.3 Gwei on Sept. 20, mean­ing the ETH sup­ply, on the whole, has been increasing.

Ethereum gas fees vs. sup­ply. Source: Ultrasound.Money

Nonethe­less, ETH’s issuance rate has decreased post-Merge, even though the sup­ply rate remains pos­i­tive with rough­ly 3,700 ETH mint­ed post-Merge to date. 

Miners add to ETH selling pressure

In addi­tion, Ether’s price drop post-Merge comes after Ethereum min­ers’ mass exit from the ETH market.

Relat­ed: Does the Ethereum Merge offer a new des­ti­na­tion for insti­tu­tion­al investors?

Min­ers sold about 30,000 ETH (~$40.7 mil­lion) in the days lead­ing up to the Ethereum’s PoS update, accord­ing to data pro­vid­ed by OKLink. 

ETH min­er address bal­ance. Source: OKLink

Pseu­do­ny­mous ana­lyst “BakedEnt.eth” not­ed that the min­ers’ ETH sell­ing-spree off­set the impact of the slow­down in Ether’s issuance reduction.

“The Merge has been live for a cou­ple of days, but many fail to see the impact of the 95% dai­ly issuance reduc­tion for a total of 49.000 $ETH in 4 days,” he wrote, adding:

“Min­ers have been sell­ing relent­less­ly into this reduc­tion and have dumped over 30.000 $ETH in the same timeframe.”

ETH’s price now risks drop­ping a fur­ther $750 in light of cur­rent macro­eco­nom­ic head­winds, which are putting pres­sure on risk-on assets across the board.

The views and opin­ions expressed here are sole­ly those of the author and do not nec­es­sar­i­ly reflect the views of Every invest­ment and trad­ing move involves risk, you should con­duct your own research when mak­ing a decision. 

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