Is an Explosion of Ethereum on the Horizon? ETH Turns Deflationary Amid Rising Gas Fees

• Ethereum price has recovered by double digits in a week.
• On-chain data shows the blockchain has once again become deflationary.
• Experts believe the falling token supply could be a positive trigger for ETH.

Ethereum continued its bullish climb over the weekend before stalling at the beginning of a new week. The second-largest crypto has now reclaimed the pre-FTX crash price. In just one week, the price of Ethereum has recovered by 17% and looks unstoppable to the $1,650 resistance, according to data provided by CoinMarketCap. 

Meanwhile, investors would be excited that Ethereum has become deflationary once again. According to UltraSound Money, the network’s gas fees have reached 15 gwei – representing about a 30 gwei drop compared to the period before the Merge. 

Is Ethereum Merge Making the Network Deflationary?

The idea of Ethereum becoming deflationary takes us back to the network update. With the Merge, the EIP 1559 upgrade enabled a burn mechanism on Ethereum that destroys ETH generated as fees from the network’s transaction verifications. That explains the deflationary dynamics being witnessed.

Nonetheless, Ethereum Merge has a hand in the amount of ETH in supply, with a decline in the number of ETH tokens being minted. When Ethereum was a PoW blockchain, it had to reward the miners, which resulted in more circulating tokens. It doesn’t need to do that now since it is a PoS protocol. That has seen a continued decline in the ETH supply.

Ethereum became deflationary for the first time since the Merge in early November. The period coincided with an increase in ETH price before the FTX collapse. The FTX crash saw ETH’s edge towards being inflationary after losing 80% of deflationary gains.

Deflationary Dynamics and Ethereum Price

A deflationary Ethereum would be great news for the ETH bulls, as seen when the price reacted positively before the FTX crash and the cryptocurrency became deflationary. As Ethereum becomes deflationary again, Twitter wars are brewing over the supremacy of the cryptocurrency versus Bitcoin. Once again, the idea of ETH being the ultra-sound money due to its declining supply is being propagated. 

But how much Ethereum explodes is debatable, but the deflationary status is positive for the price. The proposition even makes more sense at a time when investors are seeking safe havens from rising inflation. Although Bitcoin has retained the crown as a potential inflation hedge, Ethereum could emerge as a worthy competitor.