Ethereum’s switch to proof-of-stake (PoS) on Sept. 15 failed to extend Ether’s (ETH) upside momentum as ETH miners added sell pressure to the market.
On the daily chart, ETH price declined from around $1,650 on Sept. 15 to around $1,350 on Sept. 20, an almost 16% drop. The ETH/USD pair dropped in sync with other top cryptocurrencies, including Bitcoin (BTC), amid worries about higher Federal Reserve rate hikes.
ETH/USD daily price chart. Source: TradingView
Ethereum remains inflationary
The Ether price drop on Sept. 15 also coincided with an increase in ETH supply, albeit not immediately post-Merge.
$ETH is now Ultra Sound Money pic.twitter.com/fKz6VmoWdR
— DavidHoffman.eth (@TrustlessState) September 15, 2022
Roughly 24 hours later, the supply change flipped positive once more, pouring cold water on the «ultra sound money» narrative due to a deflationary environment that some proponents expected post-Merge.
Pre-Merge, Ethereum distributed around 13,000 ETH per day to its proof-of-stake (PoW) miners and about 1,600 ETH to its PoS validators. But the rewards to miners dropped after the Merge went live by roughly 90%.
Meanwhile, validators receiving Ether rewards now only make 10.6% of the previous amount. As a result, Ether’s annual emissions have dropped by around 0.5%, making ETH less inflationary, and perhaps even deflationary under certain circumstances.
Still, the Ether supply has been rising at an annual rate of 0.2% after the Merge, according to data provided by Ultrasound Money.
Ether supply rate after the Merge. Source: Ultrasound.Money
The main reason behind the growing supply is lower transaction fees.
Notably, Ethereum made a change to its protocol in August 2021 that introduced a fee-burning mechanism. In other words, the network started removing a portion of the fee it charges for each transaction permanently. This system has burned 2.6 million ETH since going live.
Data shows that the Ethereum network’s gas fees must be around 15 Gwei to counterbalance the ETH rewarded to validators. But the fee was averaging around 14.3 Gwei on Sept. 20, meaning the ETH supply, on the whole, has been increasing.
Ethereum gas fees vs. supply. Source: Ultrasound.Money
Nonetheless, ETH’s issuance rate has decreased post-Merge, even though the supply rate remains positive with roughly 3,700 ETH minted post-Merge to date.
Miners add to ETH selling pressure
In addition, Ether’s price drop post-Merge comes after Ethereum miners’ mass exit from the ETH market.
Related: Does the Ethereum Merge offer a new destination for institutional investors?
Miners sold about 30,000 ETH (~$40.7 million) in the days leading up to the Ethereum’s PoS update, according to data provided by OKLink.
ETH miner address balance. Source: OKLink
Pseudonymous analyst «BakedEnt.eth» noted that the miners’ ETH selling-spree offset the impact of the slowdown in Ether’s issuance reduction.
«The Merge has been live for a couple of days, but many fail to see the impact of the 95% daily issuance reduction for a total of 49.000 $ETH in 4 days,» he wrote, adding:
«Miners have been selling relentlessly into this reduction and have dumped over 30.000 $ETH in the same timeframe.»
ETH’s price now risks dropping further $750 in light of current macroeconomic headwinds, which are putting pressure on risk-on assets across the board.
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