Ethereum: Deflationary? Yes, but there is more than meets the eye

According to Ultrasound Money statistics, the supply of Ethereum [ETH] dropped by 10,145.72 units in January, resulting in a net deflationary value of around $16 million. As of this writing, the total supply of ETH was 120,515,752, with a -0.012% yearly growth rate.

The reduction in ETH supply has numerous consequences for the cryptocurrency market. A decrease in supply increases demand since less of the asset is, First available for purchase. This can cause the price of ETH to rise, making it more valuable. As a result of the increased demand, additional investors may enter the market, driving up the cost of ETH even more.

Furthermore, the currency’s net deflationary value may have a favorable influence on its stability. Notably, deflationary currencies retain their value over time since the asset is scarce due to a decline in supply. This decreases the danger of inflation and makes money more appealing to investors since it is less likely to fall in value.

While ETH’s net deflationary value may provide long-term price stability, an examination of price fluctuations on a daily chart indicates an impending price reversal.

ETH was trading at $1,569.93 at the time of publication. The value of the cryptocurrency increased by 32% in January. However, as many investors rushed to grab profits, purchasing pressure dropped dramatically.

On January 27, ETH’s moving average convergence/divergence (MACD) revealed the start of a new bear cycle. Since then, the indicator has only produced red histogram bars, and the price of ETH has dropped by 2%.

At the time of publication, important momentum indicators were aiming toward their respective neutral zones. ETH’s Relative Strength Index (RSI) and Money Flow Index (MFI) have continued to fall in the previous week and are currently at 56.33 and 59.40, respectively. The preceding week saw a decline in ETH accumulation, and many sold their holdings.

Similarly, the coin’s Chaikin Money Flow (CMF) dynamic line (green) is intended to cross into the negative zone. As a result, many investors were hesitant to purchase more ETH.

The lack of new demand for ETH was reflected in a continuous fall in its Open Interest during the last ten days, according to Coinglass statistics. ETH’s Open Interest decreased by 16% throughout that period.

A decrease in an asset’s Open Interest often indicates that traders are closing out their positions and that the number of new contracts being placed is decreasing. This shows that they are growing less confident in the asset’s future price moves and are reducing their exposure.