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Will Ethereum Became Deflationary After 'The Merge?'

Ethereum’s (CRYPTO: ETH) merge scheduled for September will transition the network from Proof-of-Work to Proof-of-Stake. A researcher predicts this transition may make the token deflationary.

Benzinga · 07/27/2022 17:57

Ethereum’s (CRYPTO: ETH) merge scheduled for September will transition the network from Proof-of-Work to Proof-of-Stake. A researcher predicts this transition may make the token deflationary.

What Happened: In anticipation of this merge, Lucas Outumuro, a data analytics researcher who is head of research at crypto intelligence firm IntoTheBlock, claimed, “ETH will become deflationary following the merge.”

He further went on to state that Ethereum’s net issuance would range between -0.5% and -4.5%, varying based on network fees. So, even if a potential fall in the token’s price were to occur, Ethereum holders will still benefit from an increase in their purchasing power.

Researchers do theorize that a further falling Ethereum net issuance could cause a pump in the crypto's price due to a lowered circulating supply in a middle-term time horizon.

Ethereum is currently trading at $1,606.25. Last week, Ethereum had a bullish upswing, jumping around 50% in a span of seven days.

Why It Matters: The overall cryptocurrency market has been in a bearish downtrend for the past few months. Amidst macroeconomic fears of an impending recession and the U.S. Federal Reserve raising interest rates by 75 basis points, large-scale capital has flowed out of speculative asset classes such as cryptocurrencies. Thus, "The Merge" coming in September may be a ray of optimism in an otherwise dry and bearish market climate.

Photo: Filippo Ronca Cavalcanti via Shutterstock