Ethereum Inflation Returns After Dencun Upgrade: Will ETH Price Be Affected?

Ethereum's supply is up for the first time since switching to Proof-of-Stake, but price remains stable despite concerns.
Ethereum Inflation Returns After Dencun Upgrade: Will ETH Price Be Affected?

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Key Insights

  • Ethereum's supply is increasing for the first time since switching to Proof-of-Stake (Merge) in 2022.

  • Inflation in Ethereum has been found to be directly linked to the Dencun upgrade from March 2024.

  • Ethereum's total supply grew slightly from 120 million to 120.1 million ETH in two months.

  • Some experts believe Ethereum's strengths lie in DeFi and DApps, not necessarily deflationary pressure.

  • Despite inflation, Ethereum's price hasn't shown significant drops yet (around $3,200 as of May 2024).

ETH may not have performed well so far in terms of price.

However, since "The Merge" which turned the Ethereum network from a Proof-of-Work blockchain into a Proof-of-Stake platform in 2022, the Ethereum network has been performing extraordinarily.

However, there might be grey clouds on the horizon this time around.

Recent analytics have shown that for the first time since the Ethereum Merge, Ethereum has become inflationary.

But what does an asset being inflationary mean, and could this be bad for ETH?

It All Started With the Dencun Upgrade

What does it mean when we say an asset is deflationary?

According to Coinbase Learn, when a cryptocurrency becomes inflationary, it means that the dynamics of its demand/supply are starting to change, leading to devaluation, or a drop in prices.

This, according to data from a new update from CryptoQuant is what is happening to Ethereum at this point, and is marking a shift from the deflationary nature of ETH before it transitioned to proof-of-stake in September 2022.

Recall that the Dencun upgrade went live on Ethereum on 13 March this year.

This data from Coinglass shows that the inflation in Ethereum came right around the time the Dencun upgrade went live two months ago.

<div class="paragraphs"><p>Ethereum’s total supply rose</p></div>

Ethereum’s total supply rose

The total supply of ETH was observed to have increased marginally from 120 million ETH to 120.1 million between March 12 and May 7—which is a small increase, but still marks the first increase in Ethereum’s supply In the last two years.

How Might This Affect Ethereum?

Ki Young Ju, the founder and CEO of CryptoQuant lent his opinion on the issue in a recent tweet, in which he stated that Ethereum’s switch from being deflationary to inflationary may not even be so bad for the Ethereum network.

<div class="paragraphs"><p>Comparing Ethereum to Bitcoin might not make sense</p></div>

Comparing Ethereum to Bitcoin might not make sense

Young Ju states that the network's strengths lie in Defi and its Dapps and that comparing it to Bitcoin's "sound money" narrative may not be the right approach to things.

It is also worth mentioning that since the Merge, over 400,000 Ether tokens have been burned.

In conclusion, the inflationary nature of Ethereum this time around isn't expected to have devastating consequences for the price of $ETH.

At the time of writing, Ethereum is currently struggling underneath the $3,200 zone as shown by data from CoinMarketCap, with no significant price dips so far.

<div class="paragraphs"><p>Ethereum’s current price</p></div>

Ethereum’s current price

At the end of the day, Ki Young Ju may be right, and it may be unwise to expect any directly bearish effects on the price of $ETH and the Ethereum network as a whole.

Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.

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