The recent optimism that boosted the Ether (ETH) price to 11-month highs earlier this month has now faded, and the token is currently trading close to $1,900, which is over 11% below earlier monthly peaks. Despite this, analysts remain optimistic about the cryptocurrency’s medium to long-term prospects, particularly in comparison to other blue-chip cryptocurrencies like Bitcoin. This is due to macro conditions that are favorable for these types of cryptocurrencies. One of the key advantages of Ether over Bitcoin is that it has two deflationary tailwinds that are likely to drive significant price upside in the coming years.
The first of these tailwinds is the rising deflation rate of Ether’s supply. The deflation rate, which is the rate at which individual ETH tokens are becoming scarcer, has been increasing steadily, and most analysts believe that this will boost the cryptocurrency’s price in the long run. The second tailwind is the ongoing, rapid drop in supply as more and more investors stake their ETH tokens to secure yield. The recent “shapella” upgrade enabled the withdrawal of unstaked ETH tokens for the first time since staking was introduced to the Beacon chain in December 2020. As a result, investors have been piling their ETH tokens into the staking contract at a faster rate than the 50,400 ETH token withdrawal limit, which has led to new record highs in the number of staked ETH tokens.
As more ETH tokens are locked into the staking contract, the supply of readily available (unstaked) ETH tokens on the market declines, raising scarcity. This should push up the ETH price, particularly if the ETH staking participation rate rises to the 40-50% area in the coming years. In addition, Ethereum transaction fees and the burn rate could also shoot higher, sending the ETH supply deflation rate sharply higher in the process.
Overall, despite the recent dip in the price of Ether, analysts remain optimistic about the cryptocurrency’s long-term prospects due to the favorable macro conditions and the two deflationary tailwinds that are likely to drive significant price upside in the coming years. As the ETH supply becomes scarcer and more ETH tokens are locked into staking contracts, the price of Ether is likely to rise, making it an attractive investment opportunity for those looking for long-term gains.