Ethereum deflation rate is accelerating by the day: Here’s what to expect from ETH price

Ethereum, the second largest cryptocurrency by market capitalization, has turned deflationary since its transition to Proof-of-Stake. The altcoin’s issuance has been on a steady decline whilst its price, meanwhile, has cranked up to a five-month high. 

At $1,700 Ethereum price hit its highest level since September 2022, as evidence of shrinking supply and consistent demand among market participants bid the cryptocurrency higher. 

Also read: Three altcoins to buy in 2023 if this bull rally continues

Ethereum turns deflationary with negative issuance in 2023

Ethereum, the largest altcoin in the crypto ecosystem, has witnessed a tapering in its issuance since the Merge. The Merge was the event where ETH transitioned from a traditional consensus mechanism of Proof-of-Work to Proof-of-Stake (PoS), reducing its energy consumption by as much as 99%. 

By supply demand dynamics, the altcoin’s shrinking supply coupled with consistent demand has fueled a rally in its price. Ethereum price wiped out its losses since September 2022 and made a comeback above $1,700 earlier today. 

Ethereum price chart 

Based on data from UltraSound.Money, a tracker for the circulating supply of Ethereum post Merge, 120.49 million ETH is in circulation. The number has decreased by $40 million or 23,651 ETH tokens since the successful transition to PoS. 

Ethereum supply since the Merge 

Data from the Ultrasound.Money tracker reveals that ETH issuance has declined to its most deflationary level since September 2022. It's interesting to see the rise in price alongside declining circulating supply of the altcoin. 

In addition to the reducing supply, several bullish developments are lined up  that could act as a catalyst for the altcoin’s price in 2023.

ETH tokens staked on the ETH2 deposit contract hit record highs recently 

16.69 million ETH tokens have been staked, marking a record high in the history of the Beacon Chain contract. Despite the upcoming token unlock, market participants are aggressively staking the altcoin in the ETH2 deposit contract. 

While the value of ETH staked fluctuates with the price of Ethereum, the total number of deposits on the Beacon Chain contract is a reliable indicator of market participants’ inclination and interest in staking ETH tokens. 

ETH 2.0 total number of deposits 

As seen in the chart above, the total number of ETH deposits on the ETH2 deposit contract has climbed consistently, hitting a record-high. 

Alongside staking on Beacon Chain, ETH holders are exploring liquid staking on protocols like Lido DAO (LDO) and staking in any form effectively reduces the circulating supply of the asset, fueling a bullish narrative for the cryptocurrency. 

Ethereum’s upcoming Shanghai Upgrade is a bullish catalyst 

Ethereum's Shanghai Upgrade is scheduled for mid-March 2023 and analysts at JP Morgan believe this will raise the blockchain's staking ratio in the mid-term. The rise in staking ratio is expected to match other major PoS blockchain networks like Solana and Cardano. Nikolaos Panigirtzoglou believes that the number of validators (that attest blocks as accurate and add them to the blockchain) could increase from 0.5 million to 2.2 million and the yield could decline from 7.4% to around 5%. 

Rise in staking is bullish for the asset, as seen previously. 

Ethereum price targets the $2,500 level

Ethereum price recently wiped out its losses from the past five months, climbing to the $1,700 level despite the rising uncertainty in the crypto market. 

Now analysts believe the altcoin is set to hit the $2,500 target. @Wolf, a crypto influencer and technical analyst on Twitter has identified $1,935 as the next immediate resistance for Ethereum in its uptrend. 

ETH/USD price chart

Wolf’s target for Ethereum is $2,509.91, a level previously seen in April 2022. The altcoin is in a short-term uptrend, and a continuation could push the asset to its target of $2,509.