Ethereum Supply Expansion Sparks Worries as ETH Spot ETFs Debut
Tuesday marks a significant moment in the world of cryptocurrency with the introduction of Ethereum (ETH) spot ETFs for trading in the United States. The approval from the Securities and Exchange Commission (SEC) has paved the way for renowned financial institutions like Fidelity and BlackRock to offer these regulated investment products, facilitating easier access for U.S. investors to invest in ETH and potentially driving up demand.
However, this groundbreaking development is accompanied by mounting apprehensions regarding the escalating supply of Ethereum. Following the Dencun upgrade in March, Ethereum’s monetary policy underwent a substantial transformation, as highlighted by crypto analytics firm CryptoQuant. The upgrade primarily focused on enhancing the cost-effectiveness of transactions in Ethereum layer 2s such as Base, Optimism, and Arbitrum. While successful in reducing transaction costs on L2s significantly, this upgrade has had profound implications for ETH tokenomics, fundamentally altering Ethereum’s monetary policy and supply trajectory, as outlined in a recent report by CryptoQuant.
In the aftermath of the upgrade, Ethereum’s total supply has been on the rise, currently standing at 120.2 million ETH, the highest level since November 2023. The surge in supply can be attributed to the diminished burning of ETH resulting from reduced activity in Layer 1 and subsequent decline in transaction fees. This shift has led to Ethereum losing its previous narrative of being “ultrasound money,” which previously suggested the potential for ETH to adopt a deflationary stance by actively reducing its supply over time.
Over the last 30 days, the supply of ETH has expanded by 59,312 ETH, equivalent to over $200 million at current market prices, according to data from the ultrasound.money dashboard. If this growth rate persists, the supply of ETH is projected to return to pre-Merge levels, a crucial juncture when Ethereum transitioned from a proof of work to a proof of stake consensus mechanism, as highlighted by Benjamin Cowen, CEO, and founder of the Into the Cryptoverse newsletter.
Despite the concerns regarding Ethereum’s increasing supply, a positive aspect emphasized in the CryptoQuant report is the record-high amount of staked ETH, which currently stands at approximately 33.7 million ETH, representing 28% of the total supply. Staked ETH is effectively taken out of circulation, potentially alleviating selling pressure and bolstering ETH’s price. Moreover, market indicators suggest that ETH’s price may have hit a bottom and is showing indications of a potential upward trajectory, according to the report.
