- The decline in Ethereum network activity has caused Ether to become inflationary.
- Despite the recent price woes, ETH’s long-term prospects remain significantly bullish.
Ethereums [ETH] supply has become inflationary as the general market downturn over the past month has reduced user activity on the network.
According to data from Ultrasound.moneythe supply of the leading altcoin has increased by more than 4,836 ETH in the past 30 days. This has grown by 9,000 ETH in the last week alone.
The supply of ETH is considered to have become inflationary when there is an increase in the number of coins created and added to the circulating supply, increasing downward pressure on the coin’s price.
This happens when the Ethereum network witnesses a drop in user activity. On-chain data from Artemis revealed a decline in the daily number of unique addresses interacting with the Ethereum blockchain in the past 30 days.
Between March 23 and April 22, Ethereum’s number of daily active addresses fell by 22%. This led to a corresponding drop in the network’s daily number of transactions. This fell by 15% during the reporting period.
During the 30-day period in question, the network’s transaction fees peaked at $1.3 million on April 12, triggering a decline. Between April 12 and April 21, Ethereum’s daily fees fell by 8%.
When the Layer 1 (L1) network witnesses a decline in reimbursements, it experiences a low burn rate. A lower burn rate increases the amount of ETH in circulation, making the coin inflationary.
A look into the future
At the time of writing, ETH was exchanging hands at $3,173. Under the influence of the general market decline in the past month, the value of the currency fell by 5% during that period, according to CoinMarketCaps facts.
However, despite recent market headwinds, ETH’s 50-day moving average (MA), which produced a golden cross when the bull market rally began in October 2023, is still above its 200-day MA on a weekly chart.
This implies that the shorter-term moving average of the currency has been above the longer-term moving average for some time. This is generally seen as a bullish signal as it indicates that ETH has experienced a sustained price increase since October 2023, despite some downsides.
Market participants may interpret this as a sign of continued strength in the asset’s price.
Readings from the coin’s Directional Movement Index confirmed this bullish outlook. The coin’s positive directional index (green), which also moved above the negative directional index (red) in October 2023, has since maintained this position.
This crossover is considered a bullish signal because it indicates an increase in bullish momentum. If this happens over a longer period of time, as in the case of ETH, traders view this as confirmation of an uptrend in the price of an asset and a signal of further price appreciation.
Another indicator worth mentioning here is ETH’s Squeeze Momentum Indicator. It measures the momentum of an asset and tracks the consolidation phase of the market for traders who want to trade in a sideways market.
Price charts showed that ETH’s Squeeze Momentum Indicator has been showing green upward bars since November 2023.
When this indicator shows upward-pointing green bars, the asset in question is experiencing upward momentum.
Despite the multiple declines in the price of ETH in recent weeks, the Squeeze Momentum Indicator continues to show green upward bars, indicating that the rally will continue in the long term.
While the long-term outlook for the coin remains bullish, the surge in ETH profit-taking activity since mid-February has led to a decline in some of the key momentum metrics.
At the time of writing, ETH’s Relative Strength Index (RSI) and Money Flow Index (MFI) were 58.77 and 52.01, respectively.
Although these readings are above 50, they suggest that the recent bearish trends in the market have led to a slight decrease in buying pressure.
However, a combined reading of ETH’s RSI, MFI, and indicators reviewed above showed that the coin is not in extreme overbought or oversold conditions. It also indicates that the current trend could remain stable, with a slight bullish bias.
Source: ETH/USDT on TradingView
ETH futures market
In the ETH derivatives market, futures open interest peaked at $15 billion year-to-date on April 9 and has since fallen 33%, annually. Mint glass facts. At the time of writing, the currency’s open futures interest was $10 billion.
This decline marked a decline in trading activity on the ETH futures market. When an asset’s open interest decreases in this way, it means market participants are closing their positions without opening new ones.
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Since the start of the drop in open rates, the currency has closed with negative funding rates for five days, the last of which was on April 22. On those days, futures traders placed bets in favor of a decline in the value of the currency.
At the time of writing, ETH’s funding rate on the exchanges stood at 0.0023%, showing that long traders have regained control.