Ethereum Price Forecast: ETH could become deflationary again when blobspace gets saturated

Ethereum price today: $2,680

• Ethereum could see its burn rate increase again if demand for L2s grows.
• Bitwise CIO says Ethereum rally is more likely than Bitcoin's if Donald Trump wins the US presidential election.
• Ethereum could test its yearly high resistance of $4,093 if it flips $2,817 into a support level.

Ethereum (ETH) is up 0.5% on Wednesday and aims to tackle the $2,817 resistance in the coming days as the US elections draws closer. The top altcoin could even be set for more upside if demand for Layer 2s grows following a recent experiment by game developer Cartridge on the Starknet chain.

Ethereum could become deflationary again if L2 demand rises

Following an experiment by Cartridge on the Starknet L2, blobspace on Ethereum experienced its fourth price discovery since the Dencun upgrade in March. Blobspace is an additional storage for L2s embedded on the Ethereum Mainchain with cheaper transaction costs. 

Ethereum developers introduced the blobspace feature in the Dencun upgrade in March to help minimize fees for Layer 2 networks. However, the fee reduction came at the expense of ETH experiencing a supply expansion due to a drop in its burn rate, making the top altcoin inflationary again. In addition, it also led to reduced fee capture on the Mainchain.

As a result, a major talking point among crypto community members has been whether L2s are parasitic to Ethereum. However, the narrative looks set to change after Starknet posted a series of transactions — 857 transactions per second — from Cartridge's flippyflop game, which briefly saturated blobspace.

The test has led several community members to rethink their conclusion on L2s, with some acknowledging that blobspace could instead boost the ETH burn rate in the long term when demand for L2s grows, in turn boosting prices.

A simulation by Tim Robinson shows that if L2s scale Ethereum by 10,000 TPS in the future, the total amount of ETH burned per day could cross the $45 million mark if ETH's price is $3,000. Such a burn rate will fuel deflationary pressure for Ethereum, leading to soaring prices.

Ethereum could outperform Bitcoin if Trump wins

Meanwhile, in an interview with Yahoo Finance, Bitwise Chief Investment Officer (CIO) Matt Hougan said Ethereum has huge upside potential over Bitcoin in the event of a Donald Trump win in the upcoming US presidential election. He highlighted how a Trump win could lead to a new Securities & Exchange Commission (SEC) that will help provide regulatory clarity for altcoins.

"I think the regulatory clarity you're talking about actually matters more for the so-called altcoins, for Ethereum on down," Hougan noted. "Those are more exposed to regulatory risks, so I would expect an altcoin rally, even more so than a Bitcoin rally in the event of a Trump win. But regardless, I think both are moving higher."

In other news, Ethereum exchange-traded funds (ETFs) recorded net inflows of $7.6 million on Tuesday, per Coinglass data.

Ethereum Price Forecast: ETH could test yearly high resistance if it reclaims $2,817 key level

Ethereum is trading near $2,680, up 0.5% on the day following $25.77 million in ETH futures liquidations. Long and short liquidations accounted for $12.28 million and $13.49 million, respectively.

ETH has crossed above its 200-day Simple Moving Average (SMA) and is trending toward a key rectangle channel's $2,817 resistance level. If ETH flips the $2,817 resistance into a support level, it could extend its rally to cross above the 100-day SMA and test the $3,237 resistance level.

ETH/USDT daily chart

Notably, the $2,817 level served as a major support level for nearly four months before the crypto market crash in early August.

The 50-day SMA is also slowly tilting upward and approaching the 200-day SMA. A cross of the 50-day SMA above the 200-day SMA will indicate a strong bull market and potentially propel ETH to test its yearly high resistance of $4,093.

The Relative Strength Index (RSI) and Awesome Oscillator (AO) are above their mid-levels, indicating rising bullish pressure. However, the Stochastic Oscillator is approaching its oversold region, indicating ETH could see a correction soon.

A daily candlestick close below the key descending trendline extending from May 27 will invalidate the bullish thesis.