Investors’ current issue with Ether

After the recent halving event, the supply of Bitcoin is slowing down. However, the supply of Ether, the cryptocurrency of the Ethereum network, is actually growing at a rapid pace, according to CryptoQuant. This unexpected development is challenging the belief held by some investors that Ether would become increasingly scarce over time. The lower transaction fees on Ethereum, thanks to the Dencun upgrade in March 2022, have led to a decrease in the amount of burned Ether. This has resulted in the supply of Ether growing at its fastest rate since the merge in 2022.

CryptoQuant’s head of research, Julio Moreno, pointed out that some investors had been banking on the idea that Ether would become scarcer, leading them to invest in the cryptocurrency. However, with the recent surge in supply, this thesis is no longer valid. The Dencun upgrade has fundamentally changed the fee structure and new issuance of Ether, impacting its scarcity dynamics. Despite this shift, Ethereum remains a popular choice for investors looking for a growing and scalable network for building applications.

Over the years, Ethereum has undergone multiple protocol upgrades that have influenced its monetary policy and network rewards. The 2022 merge from proof-of-work to proof-of-stake aimed to enhance energy efficiency and control the growth rate of Ether supply. While some investors had hoped that Ether could rival Bitcoin in terms of scarcity, the focus on Ethereum as a robust transaction network for applications remains strong. The Dencun upgrade has played a key role in making Ethereum more affordable and scalable, reinforcing the narrative of Ethereum’s growth potential.

According to Moreno, reversing the trend of increasing Ether supply will be challenging, especially since the burn rate has decreased despite high network activity. In the past, a spike in network activity would lead to a surge in the burn rate. To change the growing supply trend, network activity would need to increase significantly, potentially requiring a three to fourfold rise. Despite the unexpected growth in Ether supply, the underlying narrative of Ethereum as a growing and scalable network remains intact, offering continued potential for investors interested in the cryptocurrency.

In summary, while the supply of Bitcoin is slowing down post-halving, the supply of Ether is increasing at a rapid pace, contrary to some investors’ expectations. The Dencun upgrade has significantly impacted Ethereum’s fee structure and supply dynamics, leading to a surge in Ether supply. Despite this shift, Ethereum continues to be viewed as a strong, scalable transaction network for building applications. Reversing the trend of growing Ether supply will be challenging, given the decrease in burn rate despite high network activity. Overall, Ethereum’s narrative as a growing and scalable network remains compelling for investors seeking opportunities in the cryptocurrency market.