The recent decline in the value of Ether (ETH), the native token of the Ethereum network, has raised concerns among investors and enthusiasts. Between October 2 and October 9, ETH experienced an 8.2% drop in price, prompting many to question the factors contributing to this decline. One of the key reasons behind this price drop is the increase in coin issuance resulting from Ethereum’s regular monetary policy.
Throughout 2022, the Ethereum network underwent significant upgrades that introduced changes to its coin issuance mechanism. These changes aimed to secure the network and reduce the supply of ETH. Ethereum enthusiasts dubbed this new supply schedule as “ultrasound money,” as it initially led to a net decrease in the total supply of ETH. However, what many failed to anticipate is the inherent unpredictability of this monetary policy.
In September 2023, the coin issuance equation experienced an inversion due to reduced network activity and decreased dynamic base fees. As a result, the supply of ETH increased by 30,064 ETH in the past 30 days, as reported by Ethereum analytics provider ultrasound.money. While Ethereum’s mechanisms are functioning as designed, the decrease in demand for transactions has led to an increase in coin issuance, counteracting the intended decrease in supply.
Another factor contributing to the negative sentiment surrounding ETH is the relevant sales made by Ethereum co-founder Vitalik Buterin and the Ethereum Foundation. Data from Arkham analytics reveals that Vitalik Buterin’s address sent 3,999 ETH to exchanges in the past five weeks, amounting to approximately $6.4 million. The most recent transaction on October 7 suggests that the ETH was likely exchanged for fiat currency on Bitstamp. Interestingly, Buterin still holds a significant amount of ETH, with an address containing 36,000 ETH equivalent to $57.2 million.
The Ethereum Foundation also recently made a sale, converting 1,700 ETH into $2.74 million worth of stablecoins on October 9 using Uniswap. Analysts argue that these sales align with the foundation’s regular requirements for operational expenses, grants, and incentives. However, the magnitude of these sales has sparked speculation within the community, fueling concerns about the impact on the price of ETH.
Furthermore, on-chain activity related to the FTX hacker has caught the attention of the Ethereum community. The crypto wallet address initially holding 175,496 ETH moved a significant portion to the THORChain router, subsequently converting it into Threshold Network’s tBTC, an ERC-20 tokenized version of Bitcoin (BTC). This move prompted THORSwap to suspend conversion transactions on October 6.
While numerous hypotheses can be formulated to explain the hacker’s on-chain activity, there seems to be no clear reason for converting ETH into a wrapped version of Bitcoin, other than anticipating higher returns in fiat currency terms. The FTX hacker’s actions add to the uncertainty surrounding the Ethereum network and its potential vulnerabilities.
Despite the decrease in supply, ETH has been underperforming in comparison to Bitcoin since November 2022. Over the past 11 months, ETH has lagged behind Bitcoin by 25.7%, resulting in the ETH/BTC ratio breaching the 0.06 support level. Several factors contribute to this negative sentiment, including regulatory risks faced by tokens and exchanges.
In June 2023, the U.S. Securities and Exchange Commission filed lawsuits against top cryptocurrency exchanges Binance and Coinbase. These lawsuits have added regulatory uncertainties and risks to the cryptocurrency market, impacting the sentiment towards Ethereum. Additionally, the launch of Ethereum futures-based Ether ETFs on the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE) on October 2 did not attract significant investment, with less than $10 million in aggregate assets under management during the first week of trading.
Ethereum is currently facing a range of challenges, from decreased demand and increased coin issuance to negative sentiment and regulatory risks. These factors have contributed to the recent decline in the price of ETH and cast doubts on the future prospects of the Ethereum network. While the network’s upgrades aimed to enhance its functionality and reduce coin supply, the inherent unpredictability of its monetary policy has led to unintended consequences. As the Ethereum community grapples with these challenges, it remains to be seen how the network will evolve and regain its footing in the cryptocurrency market.
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