Ethereum began to deflate due to the rise in demand for NTFs. Which way ETH will move next?

For the first time since the Ethereum blockchain switched to the proof-of-stake (PoS) algorithm, ETH has deflated.  According to ultrasound.money, the altcoin’s supply growth at the time of writing is -2,724.83 ETH, and the annual inflation rate has fallen to -0.07%. This means that the amount of Ether being burned is outpacing the amount being minted.

Why are more Ethereum coins being burned?

Crypto analyst at digital asset broker GlobalBlock, Marcus Sotiriou, says Coindesk, that the increase in burned Ether was caused by a surge in sales of non-fungible tokens (NFTs), which in turn was caused by positive sentiment in the cryptocurrency market in general.

“More NFT sales on Ethereum means more transactions are occurring, resulting in more ETH being burnt,” said Sotiriou.

According to Cryptoslam, Ethereum leads NFT sales for the last week with $198,185,039. The growth was 12%. 

According to ultrasound.money, 14,602.74 ETH worth about $23,264,297 were burned in the last 7 days. About 3,416 of these coins were burned during NFT trading. NFT’s OpenSea trading platform is the largest seven-day and 30-day gas eater of any platform.

The cryptocurrency became deflationary as a result of a rise in the price of the so-called gas needed to keep the network running, too.

The gas fee on transactions helps prevent malicious requests from overloading the blockchain: the higher the load on the network, the higher the gas fee. Since the completion of The Merge update on September 15, 2022, the number of new Ethereum coins being issued has dropped by 90%. 

Deflation is also affected by a special mechanism for burning a portion of the transaction fee known as EIP-1559, which was launched in August 2021. EIP-1559 is linked to the amount of ETH burned when using the network: the more transactions on the blockchain, the more ETH is burned.

What will happen to the Ethereum (ETH) price now?

Despite the fact that the number of coins appearing is lower than the number of coins removed from circulation, the price of Ethereum is not increasing. For example, after the merger, ETH dropped below $1300 at the beginning of the crypto winter. As of January 24, Ether is trading at around $1,600, showing a rise of about $100 over the past 7 days.

It is worth noting that more new smart contracts on Ethereum have begun to appear. According to a CryptoQuant platform analyst nicknamed CryptoOnchain, after a decline between August 2021 and October 2022, the number of new smart contracts on the Ethereum network has increased over the past four months.

A significant increase in ETH smart contracts in the last4 months chart https://t.co/4UxXScKDjZ via @cryptoquant_com

— CryptoOnchain (@CryptoOnchain) January 17, 2023

This could be a sign of high developer activity and interest in the platform, indicating that the Ethereum ecosystem is growing.

Also by the end of Q1 2023, it is expected an update of the Ethereum network called Shanghai. This could inflate the price of the token, which is what those who HODL cryptocurrency are counting on. Users who have staked ETH directly through Ethereum or through a staking product will be able to withdraw their funds.

The update will improve scalability and security, and a new consensus mechanism will allow for more efficient and decentralized decisions.

Bitwise Asset Management analysts noted that the number of coins frozen in the stack will increase, which could have a positive impact on their price.

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