More than 2.8 million ETH have been burned since Ethereum’s London update went live.
This was revealed by the burn page of beaconcha.in, according to which a total of 2,847,802.9 ETH have been burned to date. At today’s prices, their dollar value is more than 4.6 billion.
The London fork took place on 5 August 2021, and introduced EIP-1559, which provides for the burn of some of the ETH paid as fees on each transaction.
The goal was to make Ethereum deflationary, and in fact that is exactly what happened.
Indeed, since the Merge in September 2022, Ethereum’s circulating supply has dropped by 2,600 ETH, according to ultrasound.money.
This can be clearly seen on Etherscan: while until August 2021 the circulating supply was increasing strongly and steadily, with the London update it started to grow much more moderately. Moreover, after the September 2022 switch to Proof-of-Stake it even began to shrink.
In the last 130 days, it has shrunk by less than 0.1%, without any increase. Generally, inflation of the money supply reduces the real value of coins, so the important thing would be that it does not increase, or increases very little.
Looking instead at the last 365 days, ETH supply increased by 2%, but only because for almost two-thirds of this period Ethereum was still based on Proof-of-Work.
The shift to PoS by Ethereum (ETH)
In particular, the move to PoS has drastically reduced the number of new ETH that are issued with each new block, because mining has been eliminated.
Mining, which works only with PoW, has high costs, so to be maintained it actually needs to be well remunerated. As long as Ethereum was based on PoW it was in fact necessary to issue more ETH than was burned.
While before August 2021 Ethereum was PoW-based and had no fee burn, initially from August 2021 until September 2022 it continued to be PoW-based, but with the fee burn. In those thirteen months, circulating supply continued to increase, although at a lower percentage than before.
But starting in September 2022, with the shift to PoS and the end of ETH mining, it was no longer necessary to issue large amounts of new ETH to pay miners sufficiently, and this allowed ETH creation to be reduced to a level below that of ETH burned with fees.
The result has been a reduction in circulating supply, although in order to fully measure and appreciate this it will be necessary to wait until September of this year, or twelve months after the move to PoS.
The price of Ethereum (ETH)
However, what is surprising so far is that the price of ETH has not increased significantly in the meantime.
In fact, the current price is yes higher than it was at the end of September 2022, but lower than it was in the days just before the Merge, i.e., the switch to Proof-of-Stake that took place on 15 September 2022.
In other words, after the Merge it fell, and then fell further in November due to the FTX bankruptcy, and so far has not yet been able to return to pre-Merge levels.
On the other hand, it is worth noting that from August 2021 until November of the same year it had risen quite a lot (+80% to the peak), and then fell for more than six months.
The current price is more than 40% lower than when the London update was introduced, and 15% lower than when the Merge occurred.
This means that in the short and medium term it is not monetary policies but market trends that affect the price the most. In other words, both the London update and the Merge had no significant impact on price in the medium term, but could have an impact in the long term.
Something interesting is that the 2022 ETH low was touched before the Merge, and not in November with the FTX collapse, and that the bear market decline of the previous cycle, in 2018, was 95% while the 2022 decline was “only” 82%.
Instead, considering that the price of Bitcoin after June 2022 fell again, making an annual low in November, it is possible that the Merge and the fact that ETH since September 2022 has become weakly deflationary helped the price to stop falling below the June lows.
Indeed, from late April to late September 2022 the price of ETH had lost slightly more than that of BTC, with a very similar trend, while from October onward the trend was slightly different. Nevertheless, from the end of September 2022 to now Bitcoin’s dominance has risen from 37% to 41%, while ETH’s dominance has only risen from 16% to 18%.
For now, the price trend of ETH still follows the general trend of the crypto market, which in turn is influenced by the price trend of BTC, but it is not necessarily the case that in the long run this correlation will continue.