Ethereum's supply has been inflating for 73 days straight. $ETH

The supply of new Ether (ETH) has been in its longest inflationary spell since the Merge in 2022, and the blockchain's Dencun upgrade in March seems to be responsible. The supply of ETH has been gradually increasing, with over 112,000 ETH being added to the overall supply since April 14, according to Ethereum data dashboard ultrasound.money.

Much of this inflationary activity can be traced back to the Dencun upgrade which went through on March 13, which introduced nine Ethereum Improvement Proposals (EIPs), including EIP-4844 which appears to be the reason for the inflation. EIP-4844 introduced "blobs" — a mechanism that allows transaction data to be stored separately and temporarily, reducing the fees paid for block data on Ethereum layer 2 networks. Additionally, Dencun introduced proto-danksharding, which saw more efficient data availability for block space on the Ethereum mainnet.

The recent developments in the Ethereum futures markets suggest that a rally to $3,700 is highly unlikely. While the cost of executing transactions on Ethereum layer 2 networks such as Arbitrum and Optimism has seen a massive reduction, the total amount of ETH being burned on the mainnet has been reduced significantly as a result.

Despite the fact that ETH supply has flipped inflationary in recent months, the total supply of ETH has still decreased significantly since The Merge. Since September 2022, more than 1.5 billion ETH has been burned, while 1.36 billion ETH has been added, resulting in an overall supply reduction of 345,000 ETH, equating to just over $1.1 billion at current prices. This reduction in supply is a direct consequence of the switch to a proof of stake consensus mechanism.

Given these market dynamics, it is highly unlikely that Ethereum will see a rally to $3,700 shortly.