The recent optimism that pushed Ether (ETH) prices to 11-month highs earlier this month has now faded, and the token is currently trading near $1,900, which is more than 11% below its previous monthly peak. Despite this, analysts remain optimistic about the medium and long term prospects of the cryptocurrency, especially in comparison to other blue-chip cryptocurrencies such as Bitcoin. This is due to favorable macro conditions for this type of cryptocurrency. One of the main advantages of Ether over Bitcoin is that it has two deflationary tailwinds that are likely to drive significant price increases in the coming years.
The first of these attracts is the increased deflation rate of the Ether supply. The rate of deflation, which is the rate at which individual ETH tokens become scarcer, is steadily increasing, and most analysts believe that this will increase the price of the cryptocurrency in the long term. The second draw is a rapidly decreasing supply as more investors stake their ETH tokens to secure yields. A recent “shapella” update enables the withdrawal of non-staken ETH tokens for the first time since staking was introduced to the Beacon chain in December 2020. As a result, investors have been piling their ETH tokens into staking contracts at a faster rate than the 50,400 token withdrawal limit. ETH, which has led to a new record high in the number of ETH tokens staking.
As more ETH tokens are locked into staking contracts, the supply of available (not staked) ETH tokens on the market decreases, increasing scarcity. This will push up the ETH price, especially if the ETH staking participation rate rises to the 40-50% area in the coming years. Additionally, Ethereum transaction fees and burn rates could also spike higher, sending a much higher rate of ETH supply deflation in the process.
Overall, despite the recent decline in Ether’s price, analysts remain optimistic about the cryptocurrency’s long-term prospects due to favorable macro conditions and two deflationary tailwinds which are likely to drive significant price gains in the coming years. As ETH supplies become scarcer and more ETH tokens are locked into staking contracts, the price of Ether is likely to increase, making it an attractive investment opportunity for those seeking long-term returns.