One of the strongest narratives surrounding ETH is the idea of “ultrasound money”, i.e. the deflationary supply dynamics since the EIP-1559 update. The function is simple: the more activity on the main chain, the more ETH is “burned”, i.e. taken out of circulation in the long term. This causes the overall supply to shrink.
Due to the dwindling activity in September, some feared that Ethereum’s deflationary supply dynamics were coming to an end. The inflation rate has been positive since around mid-August, which can be attributed to the general decline in activity on the blockchain in the summer months.
In theory, more coins in circulation create a higher supply, which puts downward pressure on the price.
However, fears of a sustained phase of inflation in Ethereum turned out to be unfounded. ETH is now deflationary again. The chart clearly shows that short-term fluctuations do not have a significant impact on the general supply trend for ETH. The DeFi top dog is therefore likely to remain a deflationary monetary system in the long term.
How to interpret the most important indicators regarding ETH and what investors need to know now you can find out in the new BTC-ECHO Ethereum Report.
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