Ethereum's Deflation Gaining Ground in 2023?

The crypto bear market that began around an year ago means that the decline in Ethereum price has been one of the dominant story recently.

Ethereum is down more than 60% from its all time high back in November 2021.

But in September 2022, a change was made to Ethereum protocol that is considered to be possibly giving the crypto a long term boost.

Last September, Ethereum transitioned from its proof of work consensus mechanism to Proof of Stake consensus mechanism which is said to be consuming much less energy.

This is something that might reduce concerns about the environmental impact of cryptocurrency which might be helpful in attracting institutional capital flows in the coming future where Bitcoin might struggle for being more energy consuming.

The inflation rate of Ethereum has also dropped sharply.

As of 15 January, the annual issuance rate of Ethereum was around 0.55% while the burn rate was under 1.2%. Resultantly, Ethereum is having a deflation rate of around 0.65% per year.

Going back when Ethereum was still a proof of work blockchain, it's inflation rate was 4 to 5%.

Some analysts have posited that the deflationary impact of Ethereum's Merge may have been saved ETH from falling below $1000 and hitting fresh annual lows after the collapse of FTX while Bitcoin experienced its fresh annual lows after the debacle of FTX.

Ethereum is expected to undergo its next big upgrade the "Shanghai" hardfork in March which is touted to be a big positive for the protocol.

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