In a recent swoop, Ethereum (ETH) has witnessed an 8.2% decline, between Oct. 2 and Oct. 9, raising welts on the crypto enthusiasts’ sentiments. One can pin this fall to an upsurge in coin issuance, consequent of Ethereum’s usual monetary policy, noteworthy sales by creator Vitalik Buterin, and below expectation performance of the latest ETH futures ETF.
In the year 2022, the Ethereum network achieved significant developments minimizing the number of new Ether tokens issued to protect the network and incorporating a burn mechanism to manage ETH’s supply further. This novel supply plan has been called “ultrasound money,” as the burning surpassed issuance for a significant part of the year 2023, leading to a net decrease in the total ETH stock.
However, the uncertainty of the monetary policy caught many off guard. In September 2023, the burn mechanism slackened due to reduced network activity, shifting the coin issuance equation, leading to a supply increase by 30,064 ETH in the last thirty days.
Adding to the mix, sales associated with Vitalik Buterin have sent almost 3,999 ETH to exchanges in the past five weeks. Such a substantial movement arouses speculation within the community given the size of the sale. The Ethereum Foundation added to the narrative by converting 1,700 ETH into $2.74 million worth of stablecoins.
The negative sentiment got another hit with the dwindling demand for the ETH futures ETF. Despite Ether’s recent supply increase, its price trend against Bitcoin has been unfavorable since November 2022 underperforming Bitcoin by 25.7% in the last 11 months.
The launch of the futures-based Ether ETFs on Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE) brought less than $10 million in aggregate assets under management during their first week of trading.
To summarize, factors contributing to this bearish trend include increased regulatory risks for tokens and exchanges teased by the U.S. Securities and Exchange Commission’s lawsuits against Binance and Coinbase, increased net coin issuance, and sales by Vitalik and the Ethereum Foundation, and weaker-than-expected demand for the futures-based ETF.
Overall, the space surrounding Ether has been clouded with negative news, clearly reflected in its recent performance. However, Ethereum’s mechanisms seem to be operating as planned with no unexpected triggers. The problem partly lies in the high fees resulting from persistent network congestion, a problem only partially addressed by layer-2 scaling solutions.
Source: Cointelegraph
