Ethereum becomes deflationary for the first time since Merge. However, according to analysts, the altcoin price still carries a 50% risk of decline. The FTX Token (FTT) collapse had a negative impact on the entire market. A bearish technical setup and selling of ETH whales pose downside risks to the price of ETH.
Ethereum is getting really deflationary
The annual supply rate of ETH has dropped below zero for the first time since the PoS transition via Merge. Reason? A surge in on-chain activity during a massive cryptocurrency market crash. More ETH tokens are now being burned than were created as part of Ethereum’s fee burn mechanism. Simply put, more on-chain transactions means burning more ETH transaction fees. In a 30-day timeframe, the Ethereum network is burning 773,000 tokens of ETH annually against 603,000 issuances. In other words, the supply of ETH is falling by 0.14% per year.
Overall, the Ethereum network has burned 2.72 million ETH since the toll burning mechanism was introduced in August 2021. This means that around 4 ETH per minute is permanently destroyed. Ethereum’s transaction fees soared to their highest level since May 2022 as FTX (FTT) rushed to transfer its ETH to and from exchanges during its dramatic collapse.
In detail, around 1 million ETH left the exchanges in November, according to Glassnode data.
Many analysts see Ether’s deflationary prospects as a bullish signal that should increase its overall scarcity. But the continued rate of deflation is a product of current ETH price volatility, which could hurt prospects for recovery in the near term.
ETH is in danger of another 50% collapse
As you follow on Kriptokoin.com, the ETH price has dropped by about 20% to date. After recovering from the $1,075 local low, it was now trading around $1,250. Also, according to crypto analyst Yashu Gola, Ether’s price action has also entered the breakout phase of the dominant symmetrical triangle pattern, which could push the price down 50% from current levels.
Symmetrical triangles are continuation patterns. That is, they usually resolve after the price breaks out of its range while following the direction of the previous trend. As a rule of thumb of technical analysis, the pattern’s profit target is measured after adding the height of the triangle to the breakout point.
Applying the theory to Ether’s symmetrical triangle places its downside target around $675 by December 2022, down about 50% from current prices. Crypto analyst Croyto Capo shares these predictions:
ETH was rejected between 1,600-1,650. Now ltf seems to be on the rise. Therefore, a final leg to 1,700 awaits to match BTC going 21,000-21,500. 1,700 is a significant resistance. It should be severely rejected. Main target for local bottom = $700-800.
Whales sell ETH after FTX Token (FTT) debacle
Meanwhile, more bearish arguments stem from the recent drop in supply in the hands of Ethereum’s wealthiest investors. Notably, the duration of ETH’s November downtrend coincided with the decline in the supply of ETH held by addresses with balances between 1 million ETH and 10 million ETH.
Conversely, addresses with balances between 1,000 ETH and 10,000 ETH rose during the price drop. This means two things. First, addresses with more than 10,000 ETH tokens have reduced their holdings. So it came down to smaller groups. It’s possible that these groups are exchange wallets that witnessed massive ETH outflow during the FTX (FTT) debacle.
Second, the 10-10,000 ETH group saw the price drop of ETH as a ‘buy from the bottom’ opportunity in November that increased their control over the supply of Ether.