Ether has surged past $2,900, marking a 16% gain over the past seven days and significantly outperforming Bitcoin’s 8.5% rise during the same period. This rally has reignited investor interest in Ethereum’s long-term fundamentals, particularly its deflationary supply dynamics — a contrast to Bitcoin’s inflationary yet slowing issuance model.
According to Greg Magadini, Director of Derivatives at Amberdata, Ethereum’s native token is entering a phase of stronger structural support than Bitcoin, thanks to ongoing supply reductions since “The Merge” in September 2022. While much of the market narrative remains focused on Bitcoin’s upcoming halving in April 2025, Magadini argues that Ether’s real advantage lies in its already active deflationary mechanism.
“Everyone is talking about the Bitcoin halving in April, but that’s nothing compared to the active 'REDUCTION' in ETH supply already occurring since Sept 2022,” Magadini wrote in a recent newsletter. “ETH is the next play here! Low ETH/BTC ratio, actively finding a bid, with ETH's fundamental supply picture even better than BTC.”
Ethereum’s Deflationary Advantage
Since transitioning to a proof-of-stake consensus mechanism, Ethereum has implemented a built-in token-burning mechanism through EIP-1559, which destroys a portion of transaction fees with every network interaction. This, combined with staking lockups and limited issuance, has created a net-negative supply environment.
Data from Ultrasound.money shows that as of early 2025:
- 1,047,643 ETH were issued as validator rewards.
- 1,407,200 ETH were burned through transaction fees.
- Resulting in a net reduction of 359,557 ETH, or roughly 0.209% annual deflation.
In contrast, Bitcoin’s supply grew by 1.71% over the same period — still inflationary, albeit at a slower rate due to its halving cycle.
This structural shift means Ethereum is no longer just a smart contract platform — it’s evolving into a deflationary digital asset with scarcity baked into its protocol.
👉 Discover how Ethereum's deflationary model could reshape crypto investing in 2025.
Staking Locks Up Supply — Creating Scarcity
Another critical factor contributing to Ethereum’s tightening supply is staking. Validators must stake a minimum of 32 ETH to participate in securing the network, effectively removing those tokens from liquid circulation.
As of early 2025, more than 30.1 million ETH — approximately 25% of the total circulating supply — are locked in the beacon chain. These tokens remain illiquid until future upgrades enable full withdrawal functionality at scale.
This massive lockup reduces market volatility and increases scarcity, especially during bullish cycles when demand rises. With fewer ETH available for trading, even moderate buying pressure can drive significant price appreciation.
Moreover, the upcoming Dencun upgrade, expected in March 2025, aims to drastically reduce transaction costs on layer-2 networks through proto-danksharding. Lower fees will boost adoption and increase on-chain activity — which in turn leads to more fee burn and further deflation.
Spot Ether ETFs: The Next Catalyst?
Just as spot Bitcoin ETFs triggered a wave of institutional inflows in early 2025 — with over $5 billion in net inflows since their January launch — the market is now turning attention to spot ether ETFs.
The U.S. Securities and Exchange Commission (SEC) is widely expected to approve one or more spot ETH ETF applications later this year. Major financial institutions including BlackRock, Fidelity, VanEck, Invesco Galaxy, Grayscale, Ark 21Shares, and Franklin Templeton have all filed proposals.
If approved, these ETFs would allow traditional investors to gain exposure to Ether without managing private keys or navigating crypto exchanges — significantly broadening the investor base.
More importantly, ETFs often store assets in cold wallets for security, meaning newly purchased ETH could be permanently removed from active circulation. Combined with ongoing burns and staking lockups, this could accelerate scarcity.
“Combine this ETH ‘Supply BURN’ with dormant STAKED ETH and mix in a SPOT ETF actively putting ETH into cold storage … all of a sudden, the supply story for ETH is as bullish as fundamentals can get,” Magadini added.
Why This Matters for Investors
The confluence of deflation, supply scarcity, and institutional adoption positions Ether uniquely in the current market cycle.
While Bitcoin remains the dominant store-of-value asset in crypto, Ethereum is increasingly being viewed not just as a platform, but as a productive asset — one that generates yield through staking and becomes scarcer over time.
Key fundamentals supporting this view include:
- Net deflationary issuance: More ETH burned than created.
- High staking participation: Over a quarter of supply locked long-term.
- Upcoming protocol upgrades: Driving efficiency and adoption.
- Potential ETF approval: Opening floodgates for institutional capital.
These factors suggest that Ether may not only continue outperforming Bitcoin in the short term but could also establish stronger long-term value accrual mechanics.
👉 See how Ethereum’s evolving role compares to other top digital assets in 2025.
FAQ: Understanding Ethereum’s Supply Dynamics
Q: What caused Ethereum’s supply to become deflationary?
A: After “The Merge” in 2022, Ethereum adopted proof-of-stake and introduced EIP-1559, which burns a portion of transaction fees. When burn rates exceed new issuance from staking rewards, net supply decreases.
Q: How does staking affect Ethereum’s availability?
A: Over 30 million ETH are staked and locked in the network. These tokens are not actively traded, reducing liquid supply and increasing scarcity.
Q: Will an ETH ETF make prices go up?
A: While no guarantee, spot ETFs typically bring institutional demand and long-term holding behavior. If ETH is stored in cold wallets via ETFs, it could further reduce available supply and create upward price pressure.
Q: Is Ethereum more scarce than Bitcoin now?
A: Not in absolute terms — Bitcoin has a hard cap of 21 million. But Ethereum’s effective circulating supply is shrinking due to burns and lockups, creating dynamic scarcity that rivals Bitcoin’s fixed supply model.
Q: What impact will the Dencun upgrade have?
A: It introduces proto-danksharding to improve scalability and reduce layer-2 transaction fees. Lower costs will drive more usage, increasing fee burns and strengthening deflationary pressure.
Q: Could Ethereum surpass Bitcoin in market cap?
A: While unlikely in the near term, sustained outperformance, institutional adoption, and stronger fundamentals could narrow the gap significantly over time.
With Ether reclaiming key technical levels and fundamentals strengthening, many analysts believe we’re witnessing the early stages of an Ethereum-led market phase. As narratives shift from speculation to sustainable value accrual, assets with real economic design — like deflationary supply models and staking yield — are likely to lead the next leg of growth.
👉 Explore live ETH price data and market trends shaping the future of decentralized finance.