Ethereum (ETH), the native currency of the Ethereum network, saw an 8.2% decline between October 2 and 9. This decline in price can be attributed to increased currency issuance resulting from its regulated monetary policy, related sales by Vitalik Buterin, and a disappointing first week for the futures-based exchange-traded fund (ETF) instrument.
Increased supply of ether shatters the “ultrasound” theory.
Throughout 2022, the Ethereum network underwent major upgrades, changing its coin issuance mechanism. This overhaul significantly reduced the number of new Ethereum tokens issued to secure the network and introduced a cloning mechanism to further reduce the supply of Ethereum.
Ethereum enthusiasts have affectionately referred to this new supply schedule as “Ultrasound Money.” This is because, for most of 2023, the number of coins burned exceeded the number issued, effectively causing a net decline in the total supply of Ethereum. However, what many fail to understand is the unpredictability of this monetary policy.
In September 2023, the coin issuance equation saw a reversal as dynamic base fees decreased due to decreased network activity. According to data from Ethereum analytics provider Ultrasound, the supply of Ethereum has increased by 30,064 ETH in the past 30 days due to decreased activity in the burning mechanism.
It is important to note that Ethereum’s mechanisms are working as designed, and there have been no unexpected triggers for decreased demand in transactions. Part of the problem is high fees resulting from persistent network congestion, a problem that is only partially addressed by Layer 2 metering solutions.
Selling Vitalik and the Ethereum Foundations is bad optics
Data from Arkham Analytics reveal An address linked to Vitalik Buterin sent 3,999 ETH to exchanges in the past five weeks, with a total value of about $6.4 million. This large movement sparked speculation within the community about its reasons, given the size of the sale.
The latest transaction on October 7 indicates that ETH will likely be exchanged for fiat currency on Bitstamp. It is worth noting that the address 0xD04daa65144b97F147fbc9a9B45E741dF0A28fd7 still holds 36,000 Ethereum, equivalent to $57.2 million.
The Ethereum Foundation also recently held a sale, converting 1,700 ETH into stablecoins worth $2.74 million on October 9 using Uniswap. However, in this case, analysts noted that the foundation’s actions are consistent with its normal requirements for operating expenses, grants and incentives.
Low demand for ETH ETF futures
The cryptocurrency wallet address associated with the FTX exploiter, which initially held 175,496 ETH, transferred a chunk to a THORChain router and later converted it into the Threshold Network’s tBTC, an ERC-20 token version of Bitcoin (BTC). Interestingly, this move prompted THORSwap to suspend transfer transactions on October 6 after consulting with advisors, legal advisors and law enforcement.
Many hypotheses can be formulated to explain the on-chain activity of the FTX hacker, but there seems to be no reason to convert ETH into a wrapped version of Bitcoin other than to expect higher returns in terms of fiat currency. Despite the recent increase in the supply of Ethereum, its price trend against Bitcoin has been unfavorable since November 2022.
Ethereum has underperformed Bitcoin by 25.7% in the past eleven months, causing the Ethereum/Bitcoin ratio to break through the 0.06 support level. Therefore, several factors can be attributed to the negative sentiment surrounding Ethereum’s price, including the lawsuits filed by the SEC against Binance and Coinbase in June 2023.
Most recently, futures-based Ethereum ETFs were launched on the Chicago Mercantile Exchange (CME) and the Chicago Options Exchange (CBOE) on October 2. Brought Less than $10 million in total assets under management during the first week of trading.
Overall, the news surrounding Ether has been mostly negative, which explains its poor performance recently. Factors contributing to this trend include increased regulatory risks for tokens and exchanges, the resumption of net token issuance, sales of Vitalik and the Ethereum Foundation, and weaker-than-expected demand for futures-based ETFs.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.