Ethereum Continues To Burn, What Will The Future Of Inflation Look Like?

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2021-10-27 19:21:51

Market situation

Within the past two weeks, the price of BTC has increased rapidly from around $37,000 to $46,000. Even the crypto market is growing again. Only Ethereum is the coin in the top 10 with a growth of up to 23% within 1 week.

The BTC market is volatile and fast, the price can drop below $30,000 or up to $46,000 in a short time. For a while before this growth, BTC was moving sideways around the $30,000 to $40,000 price range. At that time, BTC was continuously withdrawn from exchanges and collected. This leads to growth because demand increases, supply is increasingly lost.

Currently, the on-chain indicators show that the demand for the Grayscale Premium index is increasing, the demand for buying BTC through GBTC has also increased. Although the price increased, the amount of BTC pushed to the exchanges to take profits showed no signs of increasing (CryptoQuant on-chain data).

The amount of BTC on exchanges is still in a downward trend. Particularly on the spot floor, this is even more evident. Coinbase Pro exchange recently showed signs of whales buying and withdrawing large amounts of BTC from the exchange.

Miners are still relatively quiet and show no signs of pushing into the sell market as prices rise.

Effect of EIP-1559 Update on Ethereum

With Ethereum, the speed of withdrawal from the exchange is faster than BTC. The amount of ETH on the exchanges is still decreasing, and there is no sign of pushing to the floor to take profits when the ETH price also increases sharply. The amount of ETH pushed into staking increased.

Currently, Ethereum generates a block every 15 seconds and the reward for each block is 2 ETH. So on average, about 4.2 million ETH is born every year. The total amount of ETH on the market (according to Coiningecko data) is now more than 117 million ETH, from which it is possible to calculate the annual ETH rate, or ETH’s annual inflation rate of 3.59%.

After the successful London hard fork with the implementation of EIP-1559, some of the ETH generated will be burned. The amount of ETH burned is the basic fee per lock, so the base fee will have a certain threshold. The exact number depends on the timing of the network, the speed as well as the volume of transactions.

Calculated according to the data after 3 days of implementing EIP-1559, the amount of ETH burned is 15,173 ETH, so on average, 5,058 ETH is burned every day. From here it can be calculated that the new inflation rate after the London hard fork is about 2.01% per year.

As can be seen, the impact of the implementation of EIP-1559 on the amount of ETH mined per lock is very large. ETH’s inflation rate has dropped by about 44%, roughly the same rate as BTC’s drop after each BTC halving event. This is also a part of the strong ETH price growth in the future.

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