The rate at which the Ether supply is deflating recently reached its highest level of the year. On Wednesday, the Annualized EIP-1559 Burn Rate surpassed the ETH Issuance Rate by 1.425%, the most since a quirk last May where the deflation rate rose above 17% for just one day.When the deflation rate increases, that means that individual ETH tokens are becoming scarcer at a faster rate.
Most analysts think this ought to boost the cryptocurrency’s price in the long run.ETH/USD’s near-5.0% drop on Friday, as crypto markets take a knock on concerns about crypto bank Silvergate and reports that Tether committed fraud to maintain access to the global banking system, suggests traders aren’t paying much attention to recent developments in the ETH deflation rate.Indeed, currently changing hands around $1,570, ETH/USD is now around 10% down versus its recent highs in the mid-$1,700s.
While ETH may be down since the start of February, its deflation rate certainly isn’t. Indeed, it seems to be trending higher.Traders should keep deflation in mind as a potential talking point/narrative that could boost ETH later this year.
Other themes that might also boost like Ethereum network upgrades, including the launch of staked ETH withdrawals next month, a potential DeFi resurgence and a potential improvement in the macro backdrop, if a US recession can be avoided and falling inflation gives the US Federal Reserve room to cut rates.Before answering the question as to what is driving the increase in the ETH deflation rate, we need to understand why ETH deflation even happens at all and that requires an understanding of how the Ethereum network fee structure works.Read more on cryptonews.com