Is Ethereum in danger? Supply-side clearing falls drastically

The burn rate and overall supply issue on Ethereum has been in real and serious trouble lately, while the crypto-currency market remains anemic despite all the events we witnessed a few weeks ago.

Is it dangerous?

Ethereum Merge and EIP-1559 have been the pillars of Ethereum’s market value and performance. The enhancement proposal introduced burn mechanisms that have taken a huge amount of Ethereum off the market for over a year now, while Merge disabled the PoW mechanism, decreasing the overall issuance on the network.

With fewer ETH in investors’ wallets, there is less selling pressure on the asset’s market value. However, the entire system only operates when grid activity is high enough to provide enough fuel to burn, decreasing the existing supply in the market.

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Ultrasound
Source : UltraSound.Money

Unfortunately, analysts and pundits did not foresee the possibility of a huge drop in activity by the end of 2022. After the destructive bear market, the Luna crash, the FTX implosion and more, an absolute majority of investors have left the market, leaving it to retail investors who are unable to provide enough activity for the Ethereum burning machines to work.

As Ultrasound.Money suggests, Ethereum’s issuance lag has dropped to 0.89x, suggesting that most of the coins issued by the network are not being burned and are being injected into the gradually increasing supply.

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But despite the excess issuance, Ethereum’s burn problem is not the only reason behind the poor price performance. As mentioned above, the current state of the crypto-currency market leaves no room for growth in assets, and the only thing that would solve this problem would be the resumption of inflows into the market, which is not going to happen in the current economic conditions.

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