Here Is Why Strong Post-Merge Fundamentals Could Benefit Ethereum Price

The shift of the Ethereum blockchain to a proof-of-stake (PoS) protocol opened new opportunities for developers and investors to explore, including the burning of Ether (ETH). Now, Ethereum transactions are validated through staking rather than mining.

Staking impacts the supply and price dynamics of Ether in ways that are different than mining. Staking is expected to create deflationary pressure on Ether, as opposed to mining, which induces inflationary pressure.

The increase in the total amount of funds locked in Ethereum contracts could also push ETH’s price up in the long term, as it affects one of the fundamental forces that determine its price: supply.

The percentage of newly issued Ether versus burned Ether has increased by 1,164.06 ETH since the Merge. This means that since the Merge, almost all the newly minted supply has been burned through the new burn mechanism, which is expected to turn deflationary when the network sees an uptick in use.

According to Bitwise analyst Anais Rachel, “It’s likely that all ETH issued since The Merge will have been taken out of circulation by the end of this week.”

1/ It’s likely that all ETH issued since The Merge will have been taken out of circulation by the end of this week pic.twitter.com/WqRASUwi4i

— Anais Rachel (@Anais_Rchl) October 27, 2022

While the graph covers the 43 days since the Ethereum Merge, the tokenomics are set up to turn Ether deflationary .

The reduction is attributable to Ethereum’s movement from proof-of-work to proof-of-stake. The total supply difference shows that Ether is still inflationary, with +1,376 ETH minted since the Merge.

Supply change post-Ethereum Merge. Source: Ultrasound Money

Ankit Bhatia, CEO of Sapien Network, explained to Cointelegraph how staking impacts supply back in May 2020:

“The retail market would most likely acquire ETH from exchanges like Coinbase, which will probably offer the option for buyers to immediately stake their purchase and further reduce circulating supply.”

There is evidence of an increase in locked Ether. For example, DefiLlama shows that over $31.78 billion worth of Ether is currently locked in smart contracts.