ETH merge did not bring any significant change in the overall market of Ethereum and it was not even deflationary for quite a lot of time. However, the recent bullish market saw an uptrend in the prices of ETH and it became officially deflationary as ETH supply becomes less than demand for the first time after the merge. Due to the high demand, the price of Ethereum hit ten weeks highest level and it might go up in the recent in upcoming days.
What was ETH Merge?
To become faster and less costly, ETH decided to change the system from proof of work to proof of stake. In this system, those staking the ETH will get more profit compared to computing power. The Merge helped reduce mining energy consumption by 99.05%. Merge was joining the original Mainnet and the new proof-of-stake for a better system.
Additionally, the ETH Merge included the plan to reduce the supply and increase the demand for ETH to make it deflationary and now ETH is officially deflationary as the supply rate of the ETH becomes less than zero for the first time.
ETH demand and supply change: deflationary
Since the merge, ETH supply change has been in reduce to -27. At the time of writing, there are more ETH burned than created due to this merge which automatically imbalances the demand and supply change of the ETH. This happens due to the on-chain transaction on the ETH platform, the more the transaction, the more ETH transaction fee gets burned and the supply becomes lesser day by day.
The current supply of ETH at the time of writing is 120,521,117. Additionally, on the 30-day timeframe, the network has burned more than 655K tokens against 622k ETH/year issuance this makes the difference about -0.03% per year. It means that each year, ETH will supply 0.03% less than the previous year.
It is estimated that more than 53,768.99 ETH are burned each month with a 1.24 ETH/min burn rate. The NFT, defi, MEV, L2, misc all collectively help to burn ETH. Since the merge, NFT burn more than 14k ETH, defi more than 13k, MEV more than 800, L2 1700, and misc more than 650.
How the supply decreases
The supply of ETH is decreasing after the ETH Merge. The supply is decreasing due to the burning of the tokens on the Ethereum platform. The fee burn is used to destroy ETH which happens whenever a transaction occurs on the Ethereum platform. The fee burn was introduced on 5 august 2021 in order to reduce the total supply of ETH.
Effect on the market
The year started with some good signs and the market is moving in the upward direction. The deflationary signal of ETH can increase the positive sentiments in the market and we may see more bullish signs in the upcoming weeks.
As the issuance is back to a deflationary level, the price of the ETH increased with it. On the morning of Jan 16, the price of ETH touched 1590$. It is the highest price for the ETH since eight November 2022. Additionally, the year started with good signs, and the bull market starts, demand ETH will increase, and gas prices will increase with it, which will make the rate of burning higher. This will result in the shrinking of the supply of ETH. These all are some good signs for the future of ETH and the overall crypto market.