Summary
- The number of ETH Whales are on the decline.
- Crypto analyst states that this is because the number of ETH tied in smart contracts is increasing.
- ETH has now become inflationary, after spending majority of time since the Merge as deflationary
Amidst the volatile cryptocurrency landscape, market movements are significantly influenced by big players, often referred to as “whales”. Fresh insights from Glassnode show Bitcoin (BTC) whales are holding onto their Bitcoin, while whales holding ETH, the native token of the Ethereum blockchain, appear to be cashing out. However, there could be a good reason for why this is happening.
Are ETH Whales Exiting?
In a recent post on X, crypto influencer, Sunny Decree shared insights he discovered on Glassnode showing the number of unique ETH whales decreasing since 2020 while BTC Whales continue to grow over the same time period.
Crypto Analyst, Andre Dragosch, was quick to respond to the post, stating that the ETH whale selling drama is a ‘nothing burger’. He went on to explain that while the number of addresses in excess of 1,000 ETH are on the decline, the number of ETH tied in smart contracts is increasing and the percentage of ETH held by the top 1% of addresses has not declined.
There are a few reasons why speculations against Ethereum have kicked off on socials recently.
Bitcoin Dominance
Bitcoin’s market dominance has traditionally reflected the shifts between bear and bull market cycles. Right now, Bitcoin’s market dominance (BTC.D) is increasing, showing a strong upward trend. If the overall market value doesn’t grow, this suggests that investors are moving from altcoins back to Bitcoin, boosting its share of the entire crypto market value.
As the chart below shows, whenever BTC.D is moving higher( Blue), the price of ETH (Orange) has moved in the other direction. In previous market cycles, an altcoin bull market has not commenced until BTC.D reaches above 60%. Currently, we are at 51%.
ETH is Now Inflationary After Temporarily Being Deflationary
It has been more than 1 year since Ethereum completed its highly anticipated “Merge,” transitioning from a Proof-of-Work (POW) to a Proof-of-Stake (POS) consensus. The shift has notably affected Ethereum’s fundamentals, specifically its circulating supply which became temporarily deflationary. Now, it’s inflationary, indicating the supply is increasing. There are two factors to understand this balancing act.
- New ETH tokens are issued to those with ETH staked in validator nodes.
- A portion of ETH used to pay transaction/gas fees is burned permanently and removed from circulation.
Therefore, if more transactions occur, the network is deflationary, and if there are fewer transactions on the Ethereum network, the network becomes inflationary. Currently, the latter is playing out.
What could this mean for the future?
It should be pointed out again that this is the current state of play. As the market starts to favour a more on-risk tone, these trends will pivot and potentially reverse.
When looking at Ethereum’s circulating supply, if it had remained Proof-of-Work to this day the yearly supply would have grown by 3.18% compared to the current decrease of -0.21%. If there continue to be fewer transactions, we can expect ETH to remain inflationary, until a busier network returns with more transactions flipping ETH deflationary again.
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