Ethereum (ETH), often lauded as a pillar of stability in the cryptocurrency world, is currently facing challenges that could undermine its reputation. Recent developments, including an uptick in Ethereum’s inflation rate and a noticeable increase in its total supply, have concerns among investors. These issues are bringing into question Ethereum’s status as a solid, “ultra” secure digital asset, particularly in the wake of recent upgrades that were initially expected to strengthen the network.

Rising Inflation and Supply Concerns

Ethereum’s inflation rate has risen to 0.73%, coupled with an increase in the total supply of ETH, which has grown from 120,060,000 ETH to 120,309,508 ETH since the Dencun upgrade in March. This increase has partially eroded the deflationary benefits introduced by Ethereum’s transition to a proof-of-stake (PoS) model following the Merge. For investors who are not staking their ETH, this supply increase translates into a net value loss of approximately 0.7%, a figure that, while modest compared to other Layer-1 projects, is still a cause for concern.

According to crypto analyst Thor Hartvigsen, this supply increase is beneficial for staking investors, providing them with rewards and incentives. However, for non-stakers, the increased supply represents a dilution of value, effectively diminishing the purchasing power of their holdings. This dynamic is creating a divide among investors, with stakers potentially benefiting at the expense of those who prefer to hold their ETH without participating in staking.

Technical Analysis and Market Dynamics

Despite these concerns, Ethereum has shown some resilience in the market. Over the last trading day, ETH experienced a slight increase of 0.5%, reaching a price of $2,520. Technical analysis reveals that Ethereum is currently trading within a range defined by a support level at $2,320 and a resistance level at $2,817. The presence of a double bottom pattern on the daily chart suggests the potential for a bullish breakout, especially if Ethereum can successfully surpass the $2,817 resistance.

Should Ethereum break through this key resistance level, the price could climb to as high as $3,300. This price point is significant as it increases the likelihood of a bullish crossover between the 100-day Simple Moving Average (SMA) and the 200-day SMA, a classic indicator of positive market sentiment. Such a crossover would likely reinforce the bullish outlook, potentially attracting more buyers and driving the price higher.

However, the scenario is not without its risks. If Ethereum fails to break above the $2,817 resistance, a pullback could be imminent. The resistance level has already been tested twice in recent weeks, with both attempts resulting in a retracement. A failure to overcome this barrier could lead to further declines, especially if market sentiment remains bearish.

Market Indicators and Potential Scenarios

Market indicators present a mixed picture for Ethereum. The Relative Strength Index (RSI) is currently at 42, indicating that ETH is neither overbought nor oversold. This position suggests the potential for a short-term bullish trend, especially if the RSI continues to rise above the SMA. However, the presence of red bars on the Awesome Oscillator (AO) points to ongoing bearish momentum, indicating that the market is still under pressure.

If Ethereum fails to maintain its current support level at $2,320, the bullish scenario could be invalidated, leading to a deeper correction. A daily close below this support level would likely signal further declines, potentially pushing ETH back toward lower price levels that were seen earlier in the year.

Looking Ahead

As Ethereum navigates these challenges, the market will be closely watching key levels of support and resistance to gauge the future direction of the asset. The rising inflation and supply issues highlight the complexities and risks associated with Ethereum’s evolving ecosystem, particularly in a market that remains volatile and unpredictable.

Investors will need to weigh the benefits of staking against the potential dilution of value for non-stakers, while also considering the technical signals that could indicate the next major move for Ethereum. As always, market participants should approach the current situation with caution, keeping an eye on both the fundamental and technical factors that could shape Ethereum’s trajectory in the weeks and months ahead.