The increase in the total amount of ETH and a new burning mechanism has led to a record low supply. The price of the leading altcoin Ethereum is now subject to different supply and demand dynamics. According to crypto expert RJ Fulton, dwindling supply and increasing demand could be the fuel Ethereum needs to reach all-time highs.
Bitcoin is in sight, but the leading altcoin should not be ignored
The spot exchange-traded fund (ETF) race is heating up. That’s why Bitcoin (BTC) has been gaining attention lately. However, Ethereum (ETH), the second most valuable cryptocurrency, should not be overlooked as a solid investment option.
ETH price is well off its all-time high. However, signs are emerging that Ethereum may gain momentum to retrace previous levels. As supply and demand dynamics continue to evolve, Ethereum’s price is positioned to benefit. But is it enough to hit the previous all-time high of nearly $5,000?
Staking is finally gaining momentum
In September 2022, Ethereum made a significant transition from the Proof-of-Work (PoW) consensus mechanism to the Proof-of-Stake (PoS) consensus mechanism with the upgrade to The Merge. This transition has had various effects, including less energy use. However, the most significant change was the shift from mining to staking. Instead of relying on miners to verify transactions by solving complex computational puzzles, the Ethereum network is now secured by validators who “stack” or lock their assets.
Initially, the number of ETH coins staked on the network was modest. This raised security concerns. However, since then, the number of staked ETH has increased to over 25 million. This represented a 70% increase in 2023 alone. Decentralization and security improvements remain necessary. However, gains have been made as approximately 18% of the total supply of Ether is now staked. With more ETH locked down, the network will not only become more secure, but will also reduce the available supply of coins. This will be a useful dynamic for altcoin price increase.
Leading altcoin enters deflationary era
As you follow on Kriptokoin.com, The Merge dominated the headlines in 2022. Actually, the London hard fork (in August 2021) network upgrade is more beneficial for Ethereum’s long-term price increase. One of the key features of the London hard fork was that it introduced a burn mechanism that resulted in the permanent destruction of part of the ETH supply in every transaction.
Prior to the London hard fork, Ethereum’s annual supply growth rate was around 4.5%. However, since the beginning of 2023, Ethereum’s supply has been decreasing by about 0.3%. Therefore, there is less ETH in circulation today compared to six months ago.
What does decreasing supply and increasing demand mean?
The decline in the current supply of Ethereum has reached 32% since the beginning of 2023. Meanwhile, ETH on exchanges is currently at its lowest level in more than five years. Accordingly, the decrease gradually becomes more pronounced. There are just over 15 million ETH on exchange balances today. This decline is likely due to increased investor activity and more coins being locked by holders. In addition, the number of active users on the network has been growing steadily since the beginning of the year. This indicates increased demand, more transactions, and thus more ETH being burned.
waving cobwebs
Ethereum’s network is gaining strength after a tough period during the crypto winter in the second half of 2022. With the burnout mechanism removing cryptocurrencies from circulation, there are real reasons to believe that Ethereum could not only regain previous peaks but potentially surpass them.
There was a 4.5% year-on-year supply increase when Ethereum hit the previous ATH level of $4,891. This was an obstacle to the price increase. Price now has different elements of supply and demand, with the newly added mechanism to limit supply and signs that its network is gaining momentum. It will probably be a long and winding road. In the long run, however, the $5,000 price tag seems likely to be within reach as Ethereum continues to benefit from the London hard fork and The Merge. The altcoin is currently trading at around $1,900. This goal also makes the altcoin a huge opportunity for long-term success.
The opinions and estimates in the article are those of the experts and are not investment advice.
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