Ethereum Supply Surge Raises Price Concerns Post-Merge

Ethereum's supply has returned to pre-Merge levels, raising concerns about the potential impact on the altcoin's price and sentiment. The Merge, which transitioned Ethereum from Proof-of-Work (PoW) to Proof-of-Stake (PoS) in September 2022, aimed to improve energy efficiency, reduce ETH issuance, and lay the foundation for future scalability upgrades. However, recent data indicates that one of the key goals, reduced ETH issuance, has not been fully achieved.

Over the past 30 days, more than 46,000 ETH have been added to the supply, with supply growth increasing since the blob upgrade in Q1 2024. The update made L2 transactions cheaper and transferred demand from the base layer L1 to L2s, reducing the amount of burnt ETH. Consequently, the ETH deflationary efforts reversed, and it took less than a year for the supply to grow back to pre-Merge levels.

This shift in ETH supply dynamics has raised questions about the altcoin's price and its relative performance to Bitcoin (BTC). Since the Merge, ETH has dropped by over 65% relative to BTC. The ETH/BTC pair, which tracks ETH's relative price performance to BTC, has declined, indicating that investors have been favoring BTC over ETH after the Merger. Crypto analyst Benjamin Cowen previously predicted that ETH supply growth to pre-Merge levels could drag the ETH/BTC pair's land cap and potentially hinder ETH's upswing.

While there are plans to increase blobs adoption and scale L1, which could help boost ETH burn rates, the current supply dynamics may dent the altcoin's short-term sentiment. Additionally, the broader market's macro uncertainty could further cap ETH's outlook. According to crypto trader, ETH could slide lower to fill the price imbalance of the recent lower candlestick wick, which is about 50% of the wick.