Ethereum (ETH), one of the most influential digital assets in the cryptocurrency ecosystem, has entered a period of notable price weakness. Over the past week, ETH has declined by more than 15%, slipping below critical technical support levels and sparking concern among investors. This downturn coincides with broader bearish sentiment across the crypto market, but Ethereum’s current slump is being driven by a unique internal factor: a shift from deflationary to inflationary supply dynamics.
For months following the historic Merge in September 2022, Ethereum maintained a deflationary supply model—meaning more ETH was burned through transaction fees than was issued as validator rewards. This scarcity-driven mechanism supported bullish sentiment and contributed to price appreciation. However, since April 2024, that trend has reversed.
Ethereum’s Inflationary Supply Shift
According to data from Ultrasound.money, Ethereum’s total supply has increased by 0.37% over the past nine months, now sitting at approximately 120.4 million ETH. This marks a significant departure from its earlier deflationary state and introduces new downward pressure on price.
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When an asset’s supply grows while demand remains stagnant or declines, downward price pressure naturally follows. In Ethereum’s case, reduced network activity and lower transaction volumes have diminished the rate of ETH burn—while staking rewards continue to be issued, leading to net supply growth.
This inflationary environment undermines one of Ethereum’s key value propositions post-Merge: predictable scarcity. As a result, traders and long-term holders are reassessing their positions, contributing to increased selling pressure.
Technical Analysis: Key Levels and Momentum Indicators
From a technical perspective, Ethereum’s recent price action paints a bearish picture. On the 4-hour chart via TradingView, ETH has broken below the $3,087 support level**, a key psychological and technical floor. This breakdown signals a resumption of the broader downtrend that began after Ethereum reached a peak of **$4,010 in December 2024.
Currently, the price trades below both the 50-period and 200-period moving averages, reinforcing the bearish momentum. These moving averages act as dynamic resistance zones, suggesting that any attempted recovery may face strong selling interest.
However, there are early signs that a short-term rebound could be on the horizon. The Relative Strength Index (RSI) on the 4-hour chart has dipped into oversold territory at 22, indicating that downward momentum may be exhausted in the near term. Historically, such extreme readings have often preceded corrective bounces—even within larger downtrends.
On the daily chart, the RSI sits at 32, approaching oversold conditions but not yet at a reversal threshold. While the daily price remains above the 50-day moving average, this support is weakening as bearish volume increases.
Market Sentiment and Funding Rates
Market sentiment plays a crucial role in short-term price movements, especially in volatile markets like cryptocurrency. One key indicator of trader positioning is funding rates—the periodic payments made between long and short traders on perpetual futures contracts.
Recent data from CryptoQuant shows that Ethereum funding rates have declined significantly, reflecting growing bearish sentiment among leveraged traders. Negative or declining funding rates suggest that traders are increasingly betting on further downside, often through short positions.
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However, there's an interesting twist: as ETH approaches the $3,000 psychological support zone, funding rates have begun to stabilize and show early signs of recovery. This suggests that some traders are beginning to open long positions, anticipating a potential bounce from this critical level.
If this recovery in funding rates gains momentum, it could trigger a short squeeze—where falling prices reverse sharply as short sellers rush to close their positions—potentially fueling a bullish correction.
On-Chain Data: Is Accumulation Happening?
Beyond price charts and sentiment indicators, on-chain metrics offer deeper insight into investor behavior. Despite the price decline, certain on-chain signals hint at potential accumulation by savvy investors.
For instance:
- Exchange outflows have slightly increased, indicating that some holders are moving ETH off exchanges and into private wallets—often a sign of long-term confidence.
- The number of addresses holding more than 1,000 ETH has remained stable, suggesting large holders (whales) are not engaging in mass sell-offs.
- Network hash rate and staking participation remain high, reflecting continued commitment from validators and infrastructure providers.
These fundamentals suggest that while retail traders may be panicking, long-term believers in Ethereum’s ecosystem—driven by its smart contract capabilities, decentralized applications (dApps), and Layer-2 scaling solutions—are holding firm.
What’s Next for Ethereum?
Ethereum now stands at a pivotal moment. Its price trajectory in the coming weeks will likely depend on three key factors:
- Supply-Demand Balance: Can network usage rebound enough to restore deflationary pressure through increased ETH burning?
- Technical Support at $3,000: Will this level hold as a floor, or will a breakdown trigger further capitulation?
- Macro Market Conditions: Broader crypto market trends, including Bitcoin’s performance and regulatory developments, will also influence ETH’s path.
If Ethereum fails to stabilize above $3,000, the next major support level lies around **$2,750–$2,800**, based on historical volatility patterns and Fibonacci retracement levels.
Conversely, a sustained move back above $3,330—the upper boundary of its previous consolidation range—could reignite bullish momentum and attract renewed buying interest.
Frequently Asked Questions (FAQ)
Q: Why is Ethereum’s supply now inflationary?
A: Since April 2024, the amount of new ETH issued to validators has exceeded the amount burned through transaction fees. Lower network usage has reduced fee burn, leading to net supply growth.
Q: What does a falling RSI mean for Ethereum?
A: A low RSI (below 30) indicates oversold conditions, which may precede a price rebound. However, it doesn’t guarantee an immediate recovery—especially in strong downtrends.
Q: Can Ethereum recover its deflationary status?
A: Yes—if network activity increases (e.g., through NFT mints, DeFi transactions, or Layer-2 rollups), more ETH will be burned, potentially restoring deflationary pressure.
Q: How do funding rates affect ETH’s price?
A: Declining funding rates reflect bearish sentiment. But if they rebound while price is low, it can signal accumulation and set the stage for a bullish reversal.
Q: Is now a good time to buy Ethereum?
A: That depends on your risk tolerance and investment horizon. From a technical standpoint, $3,000 is a critical support level offering potential value—but confirmation of reversal patterns is advisable before entering.
👉 Explore real-time Ethereum analytics and trading tools
Conclusion
Ethereum’s recent price drop reflects a confluence of technical weakness, shifting supply dynamics, and deteriorating market sentiment. While the move above 120 million ETH in circulation marks a structural change from its deflationary past, it doesn’t diminish Ethereum’s long-term utility or technological leadership.
Traders should watch the $3,000 level closely for signs of stabilization. Meanwhile, investors may view this correction as an opportunity to accumulate ETH at more favorable valuations—especially if network fundamentals improve in the coming months.
As always in crypto markets, volatility creates both risk and opportunity. Staying informed with reliable data—and understanding the interplay between on-chain metrics, technicals, and macro trends—is key to navigating Ethereum’s next chapter.
Core Keywords: Ethereum (ETH), ETH price drop, inflationary supply, deflationary burn, on-chain metrics, technical analysis, funding rates, $3,000 support