Ethereum turns deflationary for the first time since the Merge — ETH price still risks 50% drop

The annual supply rate of Ethereum (ETH) has fallen below zero for the first time since Ethereum moved to Proof of Stake in a September merge. cause? A surge in on-chain activity amid a massive cryptocurrency market crash.

Ether effectively turns into deflation

As of November 9, more Ether tokens have been burned than were created as part of Ethereum’s fee burning mechanism. Simply put, the more on-chain transactions, the more ETH transaction fees are consumed.

Over a 30-day timeframe, the Ethereum network is burning ETH at an annual rate of 773,000 tokens for the issuance of 603,000 tokens. In other words, the ETH supply is decreasing by 0.14% per year.

Ether supply growth as of November 11th. Source: Ultrasound.Money

Overall, the Ethereum network has burned 2.72 million ETH since the fee-burning mechanism was introduced in August 2021. This equates to permanent destruction of approximately 4 ETH per minute.

Ethereum transaction fees surged to their highest level since May 2022 as traders rushed to transfer ETH to and from exchanges amid FTX’s dramatic collapse.

Performance of Ethereum transaction fees over the last 6 months. Source: YCharts

According to Glassnode data, about 1 million ETH left the exchange in November.

Ether balance on all exchanges.Source: Glassnode

Many analysts see the deflationary outlook for Ether as a bullish signal, which should boost overall scarcity. However, the ongoing rate of deflation is a product of the current volatility of her ETH price, which may hurt prospects for a recovery in the short term.

Ether Price Risks Another 50% Crash

Ether’s price is down about 20% month-to-date, trading around $1,250 on Nov. 11 after rebounding from a local low of $1,075.

Moreover, Ether’s price action has also entered the collapse phase of the popular symmetrical triangle pattern, which could push the price down another 50% from current levels.

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A symmetrical triangle is a continuation pattern. That is, it usually settles after the price crosses that range while pursuing the direction of the previous trend. As a principle of technical analysis, the pattern’s profit target is measured after adding the triangle height to the breakout point.

ETH/USD 3-day price chart featuring symmetrical triangle breakdown settings.Source: Trading View

Applying this theory to Ether’s symmetrical triangle would set a lower target of around $675 by December 2022, about 50% below the current price.

A more bearish argument stems from the recent drop in supply held by Ethereum’s wealthiest investors.

Notably, the period of Ether’s November downtrend coincides with a decline in Ether supply held by addresses with balances between 1 million ETH and 10 million ETH.

Ether supply rate held by addresses with 10K–10M ETH balance.Source: Santimento

Conversely, addresses with balances between 1,000 ETH and 10,000 ETH rose during the price drop.

This has two implications. First, addresses with more than 10,000 ETH tokens have reduced holdings and thus fell into smaller cohorts.

These cohorts likely include exchange wallets that witnessed massive ETH outflows during the FTX debacle.

Ether supply rate held by addresses with 10-10K ETH balance.Source: Santimento

Second, the 10-10,000 ETH cohort saw the Ether price drop as an opportunity to “buy the dip” and increased control over Ether supply in November.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of All investment and trading movements involve risk. You should do your own research when making a decision.