Ethereum Supply Growth Raises Concerns Amid Launch of ETH Spot ETFs

The supply of ether has been growing non-stop since April. Will the weakening of the “ultrasound money” narrative hurt ETF inflows?

Tuesday marks a historic milestone for crypto as Ethereum (ETH) spot ETFs begin trading in the U.S. for the first time. The SEC’s approval has enabled major financial institutions such as Fidelity and BlackRock to offer these regulated investment products, letting U.S. investors invest in ETH more easily and likely increasing demand. 

However, this significant event coincides with growing concerns about Ethereum’s increasing supply.

Since the Dencun upgrade in March, Ethereum’s monetary policy has undergone a “fundamental change,” according to crypto analytics firm CryptoQuant. The upgrade was all about making it cheap to transact in Ethereum layer 2s, such as Base, Optimism, and Arbitrum. It was widely successful in that regard since transacting on an L2 now costs a fraction of what it used to. But it has come at a great cost to ETH tokenomics. “This upgrade fundamentally changed ETH’s monetary policy and its supply trajectory,” wrote CryptoQuant in a new report seen by Unchained.

Read more: Ethereum Scaling With L2s Has Damaged Its Tokenomics. Is It Possible to Fix It?

Since April, Ethereum’s total supply has been increasing, and now stands at 120.2 million ETH, the highest level since Nov. 2023. The primary cause of this increase is the reduced burning of ETH due to declining activity in the Layer 1, leading to reduced transaction fees. This shift has resulted in Ethereum losing its “ultrasound money” narrative, which suggested that ETH could become deflationary by actively reducing its supply over time.

In the past 30 days, ETH supply has increased by 59,312 ETH (over $200 million at current prices), according to data from the ultrasound.money dashboard. If the supply of ETH keeps increasing at this rate, the supply will be back to what it was at The Merge (the moment when Ethereum transitioned from a proof of work consensus mechanism to a proof of stake one), as noted on X recently by Benjamin Cowen, the CEO and founder of the Into the Cryptoverse newsletter.

However, the report from CryptoQuant highlights one positive note: the amount of staked ETH has reached a record high. Approximately 33.7 million ETH, or 28% of the total supply, is now staked. This staked ETH is effectively removed from circulation, potentially reducing selling pressure and supporting the price of ETH. Additionally, market indicators suggest that ETH’s price may have bottomed out, showing signs of a potential upward trend, the report claims.