Concerns about potential inflationary pressures have been raised due to Ethereum's significant challenges amid declining network activity and constant issuance. The charts present an unsettling image of Ethereum's current situation.
Ethereum's Support Decline
Ethereum has been losing ground and finding it difficult to hold onto support levels. A bearish trend is evident in the chart's distinct pattern of lower highs and lower lows. At the moment, ETH is perched at a crucial support level of about $2,500, and if this support breaks, there may be additional losses.
Potential for Short-Term Price Increase
According to the most recent price action, Ethereum appears to be in a precarious situation and could fall even further if selling pressure picks up. Ethereum is getting close to oversold territory, according to the Relative Strength Index, which might cause a brief uptick in price. Any upward movement, though, might not last long without a big catalyst, as the market sentiment is still bearish overall.
Inflationary Pressure Issues
On-chain activity data indicates an unsettling pattern for Ethereum. Despite the constant burn rate — the amount of ETH destroyed by transaction fees — the ultra sound money dashboard indicates that new ETH is being issued at a rate of about 946K ETH annually. This mismatch between issuance and burning could lead to rising inflationary pressures if network activity doesn’t pick up. According to the supply growth chart, Ethereum's supply is growing at a rate of +0.73% annually, which could be problematic given the low network activity. The lack of new use cases that could spur adoption akin to the boom times seen with NFTs and DeFi in 2021 is a major factor in the current stagnation of the cryptocurrency market. The network's underutilization is concerning as it lessens the deflationary effect that Ethereum's burn mechanism was intended to achieve.
Declining network activity and constant ETH issuance are creating inflationary risks for Ethereum. Low network usage reduces the deflationary impact of the burn mechanism, exacerbating the inflationary concerns.
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