🥛 Is Ethereum still a good investment?

GM! This is Milk Road PRO, lighting up your email inbox each Saturday with a report that helps you invest successfully in crypto. 💰

Today, we’re talking about one of the greatest supply shocks in any asset, happening right in front of our eyes.

Blockchain networks offer an opportunity that the investing world has almost never seen before – let alone one that is accessible to anyone in the world.

Just look at what happened with the Bitcoin supply and demand after the launch of the U.S. ETFs…

(...oh and that supply number was just cut in half after the Bitcoin Halving 🔥)

That’s Bitcoin. But get this. The numbers for $ETH are even better – if you understand this, you understand something that 99% of investors don’t. 👀

Supply shocks are nothing new. They occur in many assets, like commodities, real estate, and more.

However, supply shocks in assets are usually temporary. This means the price of the asset reacts like an elastic band; it shoots up and then settles back to an equilibrium once the supply issues are resolved. ⚖️

In recent years, we can remember this happening with lumber or even toilet paper during the lockdown.

For lumber, demand stayed steady while supply dropped significantly, causing lumber prices to skyrocket.

For toilet paper, demand increased unexpectedly and supply fell as factories shut down. However, once manufacturers adjusted their production to meet demand, prices returned to normal.

With blockchain networks, this dynamic works very differently.

No one can simply create more supply of network tokens. If demand keeps increasing while the supply remains fixed, it leads to a supply shock with very limited elasticity. 

Simply put, it’s not going back to its original price! 📈

But this is where Ethereum differentiates from every other asset on planet earth. 

In Ethereum's unique case, thanks to the burning mechanism introduced by EIP 1559, the supply of $ETH is continually decreasing. If demand rises, the supply diminishes even more.

Moreover, increased activity on the Ethereum network results in higher transaction fees, which in turn drives up the demand for $ETH because the yield from staking $ETH increases.

This creates a never-ending flywheel of increasing demand and decreasing supply. ⚖️

What this means for the price of $ETH is anyone’s guess, as we’ve never seen a financial instrument quite like this.

But we can assume one thing; the price appreciation of $ETH when this flywheel goes into full effect has the potential to be shocking. 🤯

In today’s report, we’re going to dive deeper into the supply and demand dynamics of $ETH.

The goal here is to get a deeper understanding of what’s happening with the current $ETH supply and where the demand is coming from.

We’re looking at various factors like:

Why is this important? Because we could be reaching an inflection point for Ethereum’s supply and demand, setting us up for one of the greatest investment opportunities in human history.

Let’s get into it 👇

$ETH SUPPLY 🔥

Let’s start with the high level numbers of $ETH tokenomics with a focus on the supply.

If you want a detailed refresher on how Ethereum tokenomics work, I recommend you check out our previous PRO report called “Is This Web3's Greatest Tokenomic Design?”

Ethereum has no cap on its supply – it’s always issuing and burning $ETH at the same time. 

The current supply of $ETH is 119,663,333, down from its highest ever supply of 120,530,930 back in October 2022.

You can see the lifetime supply of $ETH below…

We’ve marked 2 specific points on this chart.

1/ EIP 1559, which was the beginning of Ethereum burning a certain % of the gas fees it generates.

2/ The Merge, which moved Ethereum from Proof-of-Work to Proof-of-Stake and significantly reduced the amount of $ETH being issued.

Together, these two upgrades have made the supply of $ETH deflationary. 📉

But it wasn’t just these upgrades that led us here. There have been multiple changes to Ethereum's monetary policy over its 9 years of existence…

As you can see above, since late 2022 (after the Merge), Ethereum is still issuing new $ETH, albeit at a much lower rate than ever before.

Once you add the burn into the equation, you get a deflationary $ETH supply. Below we can see the monthly history of the $ETH burn. 

During bull markets, Ethereum's activity spikes, leading to a higher $ETH burn rate, whereas it drops during bear markets with less onchain activity.

Overall, since the merge, we are decreasing the supply of ETH by .22%/year.

You might be thinking… That’s not that much. How does this create a supply shock?

For this, we need to go deeper.