Ether becomes inflationary instead of becoming deflationary prior to Merge update
Ethereum is facing low fee Issues for the past few months, as with the declining popularity of the DeFi and NFT industries, network usage has become very low. This caused another problem that investors thought they would never face after the implementation of EIP1559.
According to Glassnode data, gas prices for Ethereum are currently at the level of May 2020, when the price of the second biggest cryptocurrency was around $200. With the fees on the network reaching unacceptable values, the amount of ETH burned by EIP1559 reaches an all-time low as only 11% of issued coins are being removed from circulation.
Considering the relatively high issuance, Ethereum became the most inflationary since the implementation of the coin burning system, which should have made Ethereum deflationary. Ahead of the merge update, investors expect the supply of Ether to continue to increase as network usage remains at a low level.
Lacking effect of deflation
Despite the decreasing supply, Ether’s value does not seem to be increasing during a bear market. We saw the accumulated growth back when both the DeFi and NFT industries were blossoming, which confirms that supply burning only has a collateral effect.
Previously, many Ethereum enthusiasts were betting on deflation as one of the main price drivers on the market. This was based on the fact that investors would initiate short selling and provide more pressure on existing supply.
With increasing demand for the coin in the future, investors expected Ether to enter a “deflation rally” and show yet unseen returns on the market. Unfortunately, the lack of demand for crypto has had a more significant effect on the price of ETH than deflation.
