Ethereum becomes deflationary for the first time since it was created - the price of ETH still faces a 50% drop

Key points: 

• The supply of ETH drops by -0.14% per year.
• According to Glassnode data, nearly 1 million ETH left the exchange in November.
• Ether entered the breakdown phase of its prevailing symmetrical triangle pattern, which could push prices down another 50% from current levels.
• The number of wallets with 1-10 million ETH is decreasing, while 1-10 thousand are buying the dip, which leads to uncertainties in the market. 

Ethereum is really deflationary

Since November 9, more ether has been burned than created as part of the Ethereum fee-burning mechanism. Simply put, the more transactions on-chain, the more ETH transaction fees are consumed.

Over a 30-day period, the Ethereum network burned ETH at a rate of 773,000 tokens per year, while the issuance was 603,000 tokens. In other words, the supply of ETH drops by -0.14% per year.

A total of 2.72 million ETH has been burned on the Ethereum network since the burn mechanism started in August 2021. This equates to the permanent destruction of nearly 4 ETH per minute.

Ethereum transaction fees have surged to their highest level since May 2022 as traders look to move their ETH to and from exchanges amid a sharp collapse in FTX.

In detail, according to Glassnode data, nearly 1 million ETH left the exchange in November.

Many analysts see Ether’s deflationary outlook as a bullish sign that should increase its overall scarcity. But continued deflation is a product of ETH’s current price volatility, which could weigh on prospects for a near-term recovery.

Ethereum price in danger of another 50% plunge

Ether’s price has fallen nearly 20 percent since the beginning of the month, trading around $1,250 on Nov. 11 after recovering from a local bottom of $1,075.

Additionally, Ether’s price action has also entered the breakdown phase of its prevailing symmetrical triangle pattern, which could push prices down another 50% from current levels.

Symmetrical triangles are continuation patterns, which means they usually resolve after the price breaks out of its range while tracking the direction of its previous trend. As a rule of technical analysis, the profit target for this pattern is measured after adding the height of the triangle to the breakout point.

Applying that theory to ether’s symmetrical triangle has a downside target of around $675 by December 2022, about 50% below current prices.

$ETH

It got rejected from 1600-1650. Now it's looking bullish on ltf, so expecting a last leg up to 1700, matching with BTC going to 21000-21500.

1700 is a key resistance. It should get rejected hard.

Main target for a local bottom = $700-800 pic.twitter.com/UkAphVl2MV

— il Capo Of Crypto (@CryptoCapo_) November 2, 2022

A further bearish argument comes from the recent supply drop for Ethereum's richest investors.

Notably, the duration of the ETH downtrend in November coincided with a drop in ETH supply held by addresses with balances between 1 million and 10 million ETH.

Conversely, addresses with balances between 1,000 ETH and 10,000 ETH increased during the price drop.

This could mean two things. First, addresses with more than 1,000,000 ETH tokens reduced their holdings and ended up in the 1,000-10,000 ETH queue.

Second, the 1,000-10,000 ETH cohort sees the drop in Ether’s price as a “buy the dip” opportunity, which tightened its grip on ether’s supply in November.