With Ethereums under performance of the last year since its switch to proof of stake many have been questioning and thinking that Ethereum could be on a death spiral.

This is primarily fueled by a number of things that would at first glace make you think just that. Those things being...

Ethereums Burn Rate

When Ethereum switch to POS (Proof of Stake) there was a lot of talk about centralization (which personally I feel was already in place with Proof of work being that it was only being run by people with massive GPU farms like a select few companies). However as we are seeing really that centralization is now falling to housing places like Coinbase etc which pay out a percent of the staking rewards to people that put their crypto with them.

This change also sparked a burn rate in which Ethereum was burning more of fees then it was producing per block. This meant that the supply of Ethereum was decreasing with time and not increasing. Thus a negative inflation compared to the massive possitive inflation we have on the USD.

That however has flipped with the increasing demand and growth of Layer 2 solutions. In the last 7 days alone an extra 5,456.63 ETH has been added to the supply.

This supply increase however is very small when you start to look at it. It actully in my opinion would be a health inflation and perhaps even still a bit too low.

Selling Pressure

There's also been a noted increase of sell pressure on the token as of late. From the Ethereum Foundation selling and even the creator Vitalik Buterin who recent sold $200,000 worth of the token.

The Ethereum Foundation is based out of Switzerland and is a not for profit foundation and was created in 2014 and run by an executive board of three people.

The foundation is there to support Ethereums growth without being a central authority of it. It does by this allocating funds to critical projects, research and education.

This foundation spends around $100 million dollars per year and holds roughly 650 million dollars giving it a runway of about 5-10 years.

This offloading of assets for FIAT capital is a normal thing that happens and when it does it often crashes the price of the asset. For example the last four times this has happened were.

2018 when ethereum was roughly $1,300 and then crashed to around $400
2019 when ETH was around $300 and crashed downwards of $200 (this one looks smaller but was actully more impactful percentage wise as the market cap was low.
2021 when ETH hit $4,000 and then crashed to $2,200 just months later
2021 end of year when Ethereum hit $4,500 and then crashed to the prices we see today.

So it does have a impact on the overall markets however it's bounced back from those sell offs every time exact for the first on 2018.

Spot ETH

Everyone expected some big even when Ethereum started to trade as a ETF just like Bitcoin had. However most of this was already priced in and expected. What this does do however is if there's a sharp uptick in price it now allows more people and more capital to quickly be dumped into the asset because of these ETFs. So while the addition of it might not have added much value it's now open to a much faster and wider scale of market cap it can tap into for bull markets.

The Next Moves?

This is not investment advice and is for entertainment purposes only. Do your own research before investing and understand the risks.

So what's next for Ethereum as we roll forward?

It's speculated that the foundation sales actully have little impact and the value it's providing has only improved the value of the token rolling forward. However the increasing demand of layer twos is starting to really reduce the transactions happening on the core blockchain which is having a diminishing effect on the core asset and it's instead finding that value in layer twos. But it also now has some decent competition now such of the likes of Solona.

Ethereum is also slated to go into a major upgrade at the end of this year called "Pectra" I'll go into greater detail on this as we get closer but for now the main takeaways are that Pectra is that it's focused on user experience with smart wallets and UX improvements. It would allow wallets to act as smart contracts allowing your every day user to be able to batch transactions.

The biggest point I see this improving is in defi when you go to sign a contract, add funds or liquidity and then want to claim some of your other pools. Instead of each being a costly transaction you should be able to do it with one single transaction. This would bring what is now a roughly $9 transaction down to $3. But that also means a lot less burn and activity happening on Ethereums core once again.

This upgrade will also further improve things for developers as well on the layer 1 and layer 2 systems.

What we get out of all of this is that Ethereum is actully looking healthy despite the recent negative news. When you wrap everything together there's still lots of development and demand for the token. However there is also a small risk of it all blowing up if other blockchains start to take it's transaction values and business.

Posted Using InLeo Alpha