The use and issuance of the Ether cryptocurrency that uses the Ethereum network ecosystem makes this crypto particularly unique. Today, we analyze the distribution and evolution of the ETH supply before and after the Merger to answer a crucial question: how much ether (ETH) is available for purchase?
Ether (ETH) at a crossroads
While investors’ eyes are on BTC and its reaction to the $30,000 level, ETH price forms a similar long-term trend reversal pattern.
Figure 1: Daily price of ETH
The dynamics of issuing new ether (ETH) and its use within Ethereum make this cryptocurrency a unique case.
As the price of ETH looks to breach the symbolic level of $2,000, we analyze the distribution of the ETH supply and its post-merger dynamics to answer a critical question: how much ETH is available to buy?
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ETH Supply Breakdown
After the Merger, the distribution of the ETH supply has evolved significantlywith the large transfer of ETH leaving the exchanges but also involving smart contracts within the consensus algorithm of Proof of Stake (PoS) of the Ethereum network.
Currently, the circulating supply of ETH is distributed as follows:
- Exchanges: 15,117,742 ETH (12.7%)
- Smart Contracts: 36,712,057 ETH (30.9%)
- Crowd: 26,716,238 ETH (22.3%)
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Figure 2: ETH Supply Breakdown
The rest of the supply (41,260,356 ETH, or 34.1%) is held on ETH addresses with no defined use.
This distribution shows more than half of the ETH in circulation (Smart Contracts + Staking) is currently used within the decentralized economy of the Ethereum networkwhich is a great usage rate.
Moreover, we can observe a long-term growth in the supply of ETH used within the various smart contracts including DeFi, lending/lending markets, GameFi and NFTs.
Figure 3: Supply of ETH in Smart Contracts
Generally, this metric grows during ETH bull markets as users and investors reduce risk aversion and send ETH to decentralized protocols that offer innovations and attractive returns.
The opposite happens during bear markets, with participants leaving smart contracts for:
- limit the risk of liquidations associated with strong downward volatility of altcoins;
- to spend their capital in stables;
- sell ETH.
As well as that, we can notice a significant influx of ETH from the beginning of 2023with a 20% increase and a total of more than 37 million ETH in smart contracts.
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The post-merger dynamics of the ETH supply
Regarding the dynamics of ETH issuance, we can now separate the period 2021 – 2023 into three distinct periods.
- The Proof of Work period (Formerly EIP-1599), with an inflation rate close to +4.5% ;
- The Proof of Work period + Method (August 2021 – September 2022), with an inflation rate between +3.4% to +1.4% ;
- The Proof of Bet + Two period (Post-Merger), with an inflation rate between +0.3% to -8.4%.
Figure 4: ETH inflation rate
Shows the evolution of the inflation rate of ETH between 2021 and 2023, after the transition from PoW to PoS, the monetary dynamics of ETH succeeded in deflation.
Apart from this being an aspect of computer engineering, the main effect of this change in monetary policy is that the supply of ether in circulation could be reduced.
In fact, by measuring the net change in the supply in circulation (issue – burn) since the Merge, which happened in September 2022, this measurement seems to be biased towards a decrease in the supply of ETH.
With nearly 766,000 ETH issued, more than 1.3 million ETH were burned, resulting in a net decrease of more than 600,000 ETH in the circulating supply.
Figure 5: Net change in ETH supply
The ETH burn rate, ensured by the EIP-1559, obviously leads to a decrease in ETH supply.which is seen as a very positive fact by some ETH investors.
Based on the laws of supply and demand, they theorize that a decrease in supply amid increased demand creates a supply shock, pushing ETH prices upward in a worse way.
That being said, while a 600,000 ETH drop in supply in just 11 months may seem like a significant amount, it’s worth putting that figure in a larger context.
If we compare this decrease to the total supply in circulation, it shows only a small decrease of -0.51% in the supply of ETH..
Figure 6: Net change in ETH supply (as a percentage of total supply)
While this value can be a very strong signal for some, it is relatively negligible against the supply of ETH that is still available.
nowadays, it seems hard to say that the ongoing deflation of Ether can have a visible impact on prices.
However, the change in monetary issuance caused by the Merger and EIP-1559 is still recent and it will be necessary to monitor the dynamics of the ETH supply in the long term to study the possible effects of the innovation this.
Finally, if the deflationary behavior of the supply is still negligible, then it is quite simple to answer our question: how much ETH is available to buy?
Figure 7: ETH supply available for purchase
By separating the ETH immobilized by staking and those used in smart contracts, it appears that the ethers that may be available for purchase are those that are stored within exchanges and those that have no defined use.
So, only 56 million ETH (46.9%) is liquid enough for potential investors to trade.
However, it should be noted that these measures are only presented for indicative purposes as they can change very quickly depending on the context (e.g. the number of ETH in smart contracts that can decrease quickly).
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Summary of this chain analysis of Ethereum
meEther supply distribution shows that more than half of the ETH in circulation (Smart Contracts + Staking) is currently used within the decentralized economy of the Ethereum networkwhich is a great usage rate.
The decrease in circulating supply due to ETH deflationary dynamics only represents a small decrease of -0.51% in ETH supply and remains quite negligible and it seems hard to say that the ongoing deflation of ETH can have a visible effect on prices.
Finally, it seems that there is ETH that is liquid enough to be traded by potential investors are those stored on exchanges and those with no defined use, which amounts to nearly 56 million ETH, or 46.9% of the circulating supply..
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Sources – Figures 1 to 7: Glassnode
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