Ethereum IOMAP model

Profit booking has started putting pressure on ETH, the token powering the largest smart contracts platform. However, Ethereum price is unlikely to stay down for long this week considering a 32% uptick in daily trading volume to $8.24 billion. A swelling trading volume often shows that investors accumulating, or if you’d like, bulls are preparing for the next move above $2,000.

Can Ether’s Deflationary Status Push Ethereum Price To $2,000?

Ethereum price is trading slightly above $1,700 after pulling back from last week’s high of roughly 1,732. Investors are mainly concerned about the upcoming Shanghai upgrade, which will for the first time, allow access to ETH staked in the Beacon Chain smart contracts before the Merge in 2022.

The event is expected to positively impact Ethereum price, especially with many investors preferring to lock their assets in the network’s smart contract for staking. Liquid staking protocols like Lido DAO and Rocket Pool are among the ecosystems likely to benefit from the momentum building ahead of the Shanghai upgrade. Kennan Mell, an independent market analyst mulled over the impact of the upgrade on Ethereum price saying:

“It’s possible that the successful implementation of staking withdrawals will boost Ethereum’s price as new investors decide to buy in right afterward, either because they were waiting to buy until the network successfully went through a risky hard fork to implement withdrawals or because they are lured by a more liquid staking yield.”

In the meantime, the issuance of Ether tokens has reportedly dropped to the lowest level since the network made the transition from the Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus algorithm in an event dubbed the “Merge” in September 2022.

According to data from Ultrasound Money, Ethereum’s supply has decreased by 0.046% from the Merge. This means the network is minting few ETH tokens compared to those burned from the supply over the last five months.

Ethereum Supply | Ultrasound Money

A deflationary asset in the cryptocurrency industry is often considered bullish by experts. However, this outlook is usually long-term due to the possibility of positively impacting supply and demand dynamics. Chiming in on Ethereum’s deflationary status, Jesse Dow, a macroeconomist believes this could “send the price a lot higher as demand increases.”

(1) Jesse Dow on Twitter: “#Ethereum’s #deflation #rate is accelerating by the day. This has very positive impact on the supply/demand dynamics, and should send the price a lot higher as demand increases. I think this is happening very soon. #ETH #ETHE” / Twitter

It is worth mentioning that Ethereum’s supply now stands at 122 million. Investors should be aware the second-largest cryptocurrency does not have a cap on maximum supply. Ethereum’s deflationary status commenced after the August 2021 London hard fork, which activated a fee-burning mechanism.

As the transaction fee increases, so does the burning rate. At the moment, the average gas fee on the protocol is back up to 27.13 gwei (Ethereum’s smallest unit) – last seen seven months ago.

Ethereum Price Needs To Hold This Level For A bullish Outcome

The second-largest crypto dodders roughly above $1,700 at the time of writing after correcting from a recently traded new all-time high of $1,732. From the chart below, bulls must make sure ETH price closes the day above the lower yellow band to achieve two things: Avoid a pullback to $1,600 and increase investor confidence for an upswing above $2,000.

ETH/USD daily chart

Supporting the uptrend in Ethereum price is a buy signal from the Moving Average Convergence Divergence (MACD) indicator and a golden cross. The former indicator validated a call to investors to buy Ethereum with the MACD line in blue crossing above the signal line in red.

Notice how the momentum indicator has rebounded off the mean line at 0.00 implying the path with the least resistance is to the upside, at least for now. At the same time, a golden cross came into play with the 50-day Exponential Moving Average (EMA) (in red) crossing above the signal line.

A golden cross is a bullish pattern formed when a shorter-term moving average climbs above a longer-term one. Although this index does not pinpoint the position where traders should buy, it validates a general uptrend Ethereum price.

Golden cross patterns have been associated with many bull markets in the history of Ethereum. Therefore, it is a pattern worth considering and watching closely, especially for investors looking to book long-term positions in ETH.

Key Fundamentals Bolstering ETH Price Rally

Most addresses in the Ethereum ecosystem are in profit, according to the IOMAP chart by IntoTheBlock. The biggest support runs from $1,600 to $1,652, where 2.18 million addresses previously purchased 8.46 million ETH. Investors within this cohort and the other smaller green ones would be willing to throw their weight behind Ether to make the most of the potential rally.

Ethereum IOMAP model

On the other side of the fence, Ethereum price faces significantly weak resistance zones, highlighted in the red circles on the chart. With a minor push, ETH price could quickly close the gap to $1,800 and bring $2,000 within reach.

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