Why ether’s supply is growing again and what it means for investors: CNBC Crypto World

Why ether’s supply is growing again and what it means for investors: CNBC Crypto World

today bitcoin’s in the green to kick off the week Congressman Patrick McHenry says the bill aimed at creating a regulatory framework for crypto will finally get a vote from the house and crypto Quan’s head of research explains why the denune upgrade has made eth inflationary once again welcome to cnbc’s crypto world I’m Brandon Gomez crypto prices moving higher to start the week with Bitcoin Rising more than 25% to nearly 63,000 by noon Eastern ether also climbed higher trading just under $3,000 and salana jumped nearly 1.5% to 147 bucks okay let’s talk about the top stories the SEC has opposed coinbase’s attempt to get an appeals court to intervene in the exchange’s dispute with the regulator in this filing from Friday the agency said the court should not Grant the crypto exchanges request to review how or if conventional Securities rules apply to crypto the SEC argued in the filing that coinbase was trying to create a new legal test for how crypto might fit into existing Securities precedent which a district court had already rejected coinbase’s Chief legal officer Paul gual responded to the development on X on Friday evening arguing that the SEC contradicted its own Arguments for the same kind of appeal in the Ripple case last month coinbase filed what’s called an interlat appeal in federal court asking a higher Court to review whether a crypto transaction that poses no no obligation to the original issuer of the asset should be deemed an investment contract that would be regulated by the SEC the judge overseeing the sec’s case against coinbase will have to rule on the motion and if she sides with the crypto exchange coinbase will be able to send the motion to the actual appeals court next Pro crypto Congressman Patrick McKenry says the bill aimed at creating a regulatory regime for us crypto markets will finally get a vote from the House of Representatives later this month in a statement posted to X on Friday McKenry Who is the the chairman of the financial services committee said the house will consider the financial Innovation and technology for the 21st century act which will deliver quote robust consumer protections and Regulatory Clarity for digital asset markets the bill was cleared last summer in both his committee and the house agriculture committee McKenry called the legislation much needed adding that he looks forward to taking a quote Monumental step to finally deliver the transparency accountability and consumer protections that the digital asset ecosystem desperately needs means last a crypto nonprofit launched a political action committee to raise money from its 480,000 members for crypto-friendly politicians Stan withth crypto’s pack is also endorsing a bipartisan roster of candidates running in the house and the Senate the pack joins a deep pocketed effort from the crypto industry to put political candidates in office who are committed to supporting digital assets in blockchain technology wers reports that crypto super Pacs Fair Shake defend American jobs and protect progress have have so far raised more than $110 million this election cycle according to Reuters packs like stand with crypto are typically set up to gather funds for candidates or political causes and are different than super Pacs which can receive donations of unlimited size but cannot coordinate with campaigns directly endorsements include Jim Banks a republican running for Senate in Indiana Jim Justice a republican running for Senate in West Virginia among others as of this morning stand with crypto’s website says that more than $86 million has been donated by crypto Advocates all right let’s talk about eth for our main story and specifically eth’s burn rate as a refresher networks like ethereum burn a cryptocurrency by taking it out of circulation the goal is to reduce Supply and cut down on inflation but Julio Moreno head of research at crypto Quant points out the burn rate of eth has been declining and he says the asset looks to be inflationary once again so crypto world T mckel spoke to Moreno about ether’s inflationary shift and why he points the Denon upgrade back in March as the culprit you did this research that showed that the supply of eth issuance is growing at the fastest rate since the merge so that was as a reminder that was ethereum’s technical transition in September 2022 from proof of work to proof of stake and that made its infrastructure more energy efficient and that was supposed to help lower the rate of e issuance but now Got This research out showing that um issuance is on the up and up can you break this down a little bit more for us to start when did this trend began and how did we get here yeah it began um after the uh latest upgrade uh for ethereum which was the the tenun upgrade on March 12th uh and this upgrade uh mostly was um uh make transactions more efficient and and the data storage more efficient for etherum so that um they could have like lower lower um transaction uh fees right so the transaction fees did um decline a lot uh but this made you know total transactions on on the network um transaction fees decline right and so there’s now less amount of of ethereum being burned through transactions right the uh before or um they they they um earned transactions right transaction fees get burned and when the this transaction fees were high uh it overtook the the isurance of ethereum making the the net Supply negative right at the growth of of Supply negative so after this upgrade with lower transactions even even um accounting for higher networ activity less transactions get burned right and so so this um has a result of um of uh increasing again the the need net issuance of ethereum and so that’s what we have uh been seeing since a little bit uh after the the this upgrade Denon upgrade okay and let me pause here can you just to recap what is the importance of the burn function on the ethereum network yeah so over the years ethereum uh um has experienced this protocol upgrades that have had some effects on its monetary policy right so uh at some point they wanted to um compete with Bitcoin in terms of the monetary policy right uh so Bitcoin has a you know a fixed inflation that gets HED every every four years right so they wanted to to compete on that uh and that front um for for with Bitcoin so one of the upgrades the London upgrade uh was uh introduced the the burnt the burnt fees right and so that’s what that caused like all the part of the transaction fees to to being burnt um for ethereum so that’s important in the sense that it those fees you know that that amount of ethereum just um just um it gets you know erased from from from existence right so that has the effect of lowering the the the total supply of ethereum if if if it if they are big enough right so and that had been happening you know since the merge that had been happening uh but with this latest upgrade that is not the case anymore right so ethereum became inflationary again um and so some of the you know I would say like the more relevant thing that uh we um talked about in this report is that this decrease in in transaction fees and and the transaction that get burn it’s a structural shift it’s not just because you know there’s less activity and then there’s less transaction fees right no it’s not that the activity has remained really high on ethereum but because after this up upgrade now that activity doesn’t impact fees like it did before right and so we have lower fees and then um net issuance is now positive because of that because less fees are getting burned you said this is a structural change um and that activity hasn’t fallen on the ethereum network so can you expand a little bit on on on structural and you know how long you expect this trend to last and how serious it could be for investors yeah yeah so before this upgrade if you see U network activity on ethereum like for example total number of transactions um increase right Spike then you have the C responding effect on fees like fees also spiked right this was before this latest upgrade so so the amount of fees being burned also spiked right but after this you see high activity we we still have high activity on the network but we don’t have that corresponding uh Spike on fees right and so what’s the effect on that is that less fees are getting burned and so as a consequence the the supply uh is now increasing again now when I say that this is structurally what I mean is on in the past you you see a correlation between activity and and feast right and so it was normal that if at at some point um activity decreased then fees also decrease so you could say like okay so maybe it fees decrease now because there’s less activity uh no it’s not the case right that’s the structural shift that we see that there there is no corresponding um you know lower fees lower activity or higher fees higher activity right no we have high activity but the fees don’t Spike don’t increase uh and so that because that relation she has has shift you know has maybe broken then the the the new issuance of theerum is increasing again so and that could last up until we maybe need you know much much higher activity now to see the the decreasing supply of feeds that we have seen uh before what is the potential impact to the price of ether itself um if there is a potential impact how long do you expect that to see how long until you expect to see that take effect and then what about um you know related coin coins within the E that are related or within the ethereum universe yeah so I think uh we could ask ourselves like what does this mean for investors right um so I I see this two thesis um for ethereum so one is you know if investors were thinking to get exposure to ethereum based on on the thesis that you know it was getting more scarce there was less Supply right so I think this after this this thesis is not valid anymore right so if you are you know thinking about getting exposure to to ethereum based on this thesis then you you should think again right because this really changed the this you know the structure of of fees and the structure of the new issurance of of ethereum and the the the growth of Supply now if you are looking to get exposure to ethereum under the thesis that ethereum is a growing scalable and cheap cheap transaction network uh to build thei applications you know um I think this thesis is support you know by by this uh upgrade right because it indeed made ethereum you know cheaper it made it more scalable right so I think uh it depends on the thesis that you have as an as an investor and and of course being aware of this structural shift in the supply of ethereum okay that’s all for crypto world today we will be back here again tomorrow and we’ll see you then [Music]

CNBC Crypto World features the latest news and daily trading updates from the digital currency markets and provides viewers with a look at what’s ahead with high-profile interviews, explainers, and unique stories from the ever-changing crypto industry. On today’s show, Julio Moreno, head of research at CryptoQuant, explains why he believes Ethereum’s latest upgrade has made ETH inflationary once again.

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Chapters:
00:00 – CNBC Crypto World, May 13, 2024
0:24 – Bitcoin rises
0:40 – The headlines
4:08 – CryptoQuant’s Julio Moreno

Why ether’s supply is growing again and what it means for investors: CNBC Crypto World