Ethereum just lost one if it's biggest bragging points, and its transition from a deflationary to an inflationary asset marks a potentially pivotal moment in its trajectory. While the platform continues to be a dominant player in the decentralized finance (DeFi) space, these economic and market shifts warrant close observation by investors and stakeholders. 

What Happened?

Ethereum's shares the most common cause of currency inflation with governments around the world, specifically when they print too much money. There have been 68,000 new ETH issued, compared to its burning 38,000 ETH over the last 30 days - add this excess together with a bearish month, and the additional supply enters the ecosystem as inflation.

Ethereum has a system where a portion of the transaction fees (or "gas") is burned, reducing the overall supply of ETH, while another portion compensates validator nodes.

Typically this causes ETH to be deflationary - that is, when network activity is stronger, the amount of ETH burned can surpass the amount issued.

Some Perspective...

It's crucial to note that Ethereum's annual inflation rate remains relatively subdued at 0.3%, especially when compared to Bitcoin's 1.6% and certain fiat currencies, which hover around 3.7%.

Bitcoin has been categorized as inflationary due to its capped supply of 21 million coins and the halving of its block rewards approximately every four years, which restricts its issuance and, by extension, its inflationary potential. In contrast, fiat currencies, like the US dollar, can be issued without an upper limit, leading to inflation when the supply outpaces demand.

So, while 0.3% is an insignificant amount and there's no need for investors to modify their outlooks, yet, this is something worth keeping an eye on.  Unless hit with large downturn (which I haven't seen anyone predicting) Ethereum can re-take it's 'deflationary' title fairly easily. 

Plus, For the First Time in YEARS - Ethereum Users Didn't Pay the Most in Total Transaction Fees...

Another interesting thing stood out when reviewing Ethereum's previous month - a significant drop in total transaction fees. After 3+ years embarrassingly high, sometimes absurd fees - this is a good thing.

In the last 30 days, the Tron network generated $87.4 million in fees and $65.8 million in token incentives, resulting in net profits of $21.6 million. Ethereum, on the other hand, generated $82.2 million in fees but offered token incentives of $82.9 million, leading to losses of $20.6 million.

Other platforms including Lido Finance ($46.9 million), friend-tech ($30 million), Bitcoin ($27 million), Uniswap ($23 million), Aave ($8.8 million), and BNB Chain ($ 8 million), surpassed Ethereum in generating fees.

Global Crypto Press was the first crypto news outlet to cover this story back in February when all we had was a single inside source. Three months later, our source's information seems to have been 100% accurate, as the 'rumors' from then are now part of official statements made by the government of Hong Kong.

For those just joining the story here, the important thing to know is that in 2021 China implemented a crypto trading and mining ban and ejected any company that existed for those purposes. China went from the country with the most mining power, to completely off of the top 10 list, with small countries like Malaysia and Iran now outperforming them.

You may wonder - why is that surprising? If they banned trading and mining, isn't it predictable that a sudden drop in mining hashpower coming out of China would follow? 

It's a fair question, and most people did predict the effect of a Chinese ban on crypto... at least once among the 6 times they 'banned' crypto before this, just to have its popularity continue to grow. 

But the 2021 ban was unlike any of their previous attempts, it was backed with enforcement as businesses that continued to leave their bitcoin miners running found themselves being raided, and their hardware seized. Now, with the choice to risk being next or relocate, companies either moved to other countries or simply sold their mining hardware to a company that was.

This is how the situation remained, until now.

Now, crypto appears to be on the verge of returning to China via Hong Kong...

Hong Kong is a unique situation, once fully independent of China, they are now officially 'part of China' - but unlike any other area of the country they maintain the ability to pass their own laws and remain economically independent from the federal government.  

It's with these additional freedoms that Hong Kong has just announced they will begin issuing permits to crypto based businesses beginning June 1st.

3 Things We Will Likely See Happen Almost Immediately...

- First, an increase in the overall demand for cryptocurrencies. China has one of the largest economies in the world, and if a significant portion of its population begins investing in or using cryptocurrencies, it could drive up the price of these digital assets. This could potentially lead to a new bull market in cryptocurrencies, benefiting investors and businesses in the sector.

This is why Binance CEO CZ tweeted that historically news like this is followed by a bull run. 

- Secondly, increased innovation in the crypto space. China is known for its technological prowess, and if Chinese companies are allowed to operate in the crypto space, it could lead to new technological advancements and applications for blockchain technology. 

Unfortunately, Chinese technological advances are often the result of stolen data as the nation infamously targets tech companies around the globe with the intent of recreating propritaty tech.

- Third likely impact we'll see is this decision influencing other countries' policies towards crypto. If China, once a staunch opponent of cryptocurrencies, reverses this to allow them  it could encourage other countries that have been hesitant about cryptocurrencies to reconsider as well.

I can't think of any examples of countries willingly staying out of a market both the US and China are in.

One Concern Remains..

While Hong Kong still maintains some independence from the rest of the Chinese Government, Laws they pass in Hong Kong can be vetoed by the ruling party.

We brought this up when speaking to our source there nearly 3 months ago, that portion of the article reads:

...we're hearing that Hong Kong leaders are NOT being met with disapproval from China's leadership in Beijing "there's nothing to indicate mainland officials don't want this to happen, and I believe we're well beyond the point where they would make their stance known" our source explained.

Beijing quietly allowing this to happen may be thanks to some of China's wealthiest business leaders, who have been complaining to officials about being restricted from a market with huge growth potential..."

At the time we published that article Hong Kong was still several steps away from this becoming a reality, now they're on the final step having announced their intention to issue permits for crypto companies to operate there starting June 1st.

It's a situation where approval from the ruling Communist Party will come in the form of silence. Hong Kong is providing a way for the ruling party to reverse their 2021 crypto ban without the President or other high ranking party leaders having to acknowledge it. 

Considering we're just 3 days away from Hong Kong officially open to issue permits for crypto companies to provide their services to citizens, we believe if Beijing disapproved they would have made that clear by now.

In our opinion, this is actually going to happen.

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Author: Adam Lee 
Asia News Desk 
Breaking Crypto News

 

Ethereum's Shapella upgrade went live earlier in the week, along with this came a large amount of previously locked tokens becoming available for trading - all these coins potentially hitting the open market had some predicting a sell-off. 

Those Sell-Off Predictions Appear to Have Been Wrong...

Concerns about a potential sell-off from those who locked up their ETH coins for staking now gaining access to their ETH again, making them tradable.

These locked coins total 15% of the total ETH supply - if just half wanted to sell, it wouldn't have been pretty.

Instead, the Opposite - Ethereum is up 9.58%...

The upgrade has been followed by two days of price gains for ETH - up nearly 10% since the upgrade went live.

Many who said a full blown 'sell-off' was unlikely were still ready to see at least a small dip in Ethereum's price, and thinking a small dip would happen does make sense based on standard supply and demand expectations - instead, Ethereum's been on the rise since the upgrade happened 2 days ago.

The reason even we were predicting a small price decrease was that many people would be taking a loss - these people purchased in the Aug 2021 - April 2022 timeframe when sales were highest and so was ETH's $3000+ price.  We assumed these people would continue holding on to their tokens for now, they see it slowly coming back up to those prices and would rather avoid taking a loss. 

A Maturing Market?

In previous years it feels like just the fear of a potential sell off would then actually trigger that sell off, this feels like the market is maturing. As more people get familiar with cryptocurrency and its uses, they'll become more comfortable holding onto their tokens, even during periods of potential volatility.

Overall, another strong week for crypto!

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Author: Mark Pippen
London News Desk 
Breaking Crypto News