Unlike Bitcoin, which has a limit on issuance, the price of Ethereum is rising because of the system in which a portion of the transaction fees are burned!
We take a closer look at why Ethereum prices will rise despite the lack of a issuance cap, with updated information as of May 12, 2025. Below, we analyze six key factors: supply deflation, institutional adoption, technological upgrades, staking, growth of DeFi/NFTs, and macroeconomic factors.
1. Supply deflation and the burning mechanism
Bitcoin has a fixed issuance limit of 21 million, and its scarcity supports its value. On the other hand, Ethereum has no issuance limit, and theoretically the supply could continue to increase. However, EIP-1559, introduced in 2021, added a mechanism to burn a portion of transaction fees. EIP-1559 divides transaction fees into “base fees” and “tips,” and base fees are permanently excluded from the network. This means that the more the network is used, the more ETH (Ether) will be burned, which could reduce the supply.
The Pectra upgrade, which took effect on May 7, 2025, had a major impact on this burning mechanism. Before the upgrade, the burning rate was about 70 ETH per day, but after the upgrade it more than doubled, lowering the annual inflation rate to -0.53%. This indicates that supply is becoming deflated, which will drive prices higher if demand remains constant or increases.
For example, data from May 8, 2025 shows a net daily decrease of about 400 ETH, due to more ETH being burned than being issued. This deflationary pressure is considered to be an important factor supporting the rise in the price of Ethereum.
2. Institutional Investor Recruitment
The adoption of Ethereum by institutional investors has been a major factor in the price rise. In December 2024, BlackRock purchased over $250 million in ETH, and inflows into ETH ETFs reached $2.1 billion. This trend continues into 2025, with major financial institutions and corporations investing in Ethereum, driving up the price.
Discussions on X also reflect this trend. For example, @galaxyhq stated in his 2024 report that “institutional adoption is driving the digital asset market,” while @TedPillows predicted that “institutional adoption will drive the price of ETH.” Steno Research also predicts that Ethereum will reach $8,000 in 2025, citing institutional adoption as the reason.
3. Technological upgrades and the impact of Pectra
The Pectra upgrade was a significant step in improving Ethereum’s scalability and user experience. It will take effect on May 7, 2025 and will include 11 Ethereum Improvement Proposals (EIPs). Key improvements include:
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EIP number
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Content
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influence
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|---|---|---|
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EIP-7702
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Introduction of smart account
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Gas fees can now be paid with tokens other than ETH, improving user experience
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EIP-7251
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Increased the maximum amount of ETH that can be staked from 32 ETH to 2048 ETH
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Facilitating large-scale staking by institutional investors
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EIP-7691
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Increased blob capacity (target from 3 to 6, max from 6 to 9)
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Improved efficiency and reduced costs for Layer 2 solutions
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These improvements make Ethereum a more scalable and efficient platform, which is attracting interest from developers and users. In particular, the increased blob capacity will encourage Layer 2 usage, which could lead to higher network usage and, ultimately, higher burn rates.
On X, @Bala_ibb said that “price increases after the Pectra upgrade are due to improved scalability,” and @TedPillows also pointed out that “Pectra is the largest upgrade by number of EIPs, which will impact price.”
4. Staking and Supply Reduction
In Ethereum’s Proof of Stake (PoS) system, validators stake ETH to maintain the security of the network. The staked ETH is locked and cannot be traded on the market. Pectra upgrades have improved the staking mechanism, for example EIP-7251 increased the maximum stake amount from 32 ETH to 2048 ETH.
As a result, staking has become more attractive and more ETH has been staked. One user on X said, “After the upgrade, a lot of ETH was staked from exchanges, changing the supply game,” while another user pointed out, “Large addresses accumulated ETH before the ETF decision, increasing staking demand.” This reduces the amount of ETH in circulation, creating upward pressure on the price.
5. The Growth of DeFi and NFTs
Decentralized finance (DeFi) and non-fungible tokens (NFTs) are growing on the back of Ethereum. DeFi provides financial services like lending, borrowing, trading, and insurance without a central authority, while NFTs represent unique assets like digital art or gaming items.
As we enter 2025, DeFi total value locked (TVL) is hitting an all-time high and the NFT market is also recovering. These activities require ETH, and increased demand is driving up prices. One user on X reflected this trend, saying, “ETH is dominating with RWA and stablecoins, supporting the price.”
6. macroeconomic factors
Macroeconomic factors such as falling interest rates and inflation fears also motivate investors to turn to alternative assets like Ethereum. For example, when central banks cut interest rates, returns on traditional investments fall, leading to increased investment in riskier assets.
In addition, the SEC chairman will be replaced in January 2025, and more crypto-friendly policies are expected. One user on X emphasized this point by saying, “Increased trade transactions and improved macroeconomic conditions will encourage risk-on sentiment, pushing up ETH prices.”
summary
From the above research, the rise in Ethereum price is due to supply deflation (especially the increased burn rate after the Pectra upgrade), adoption by institutional investors, improved scalability due to technical upgrades, supply reduction due to staking, growth of DeFi/NFTs, and macroeconomic factors. The combination of these factors is likely to be driving the value of Ethereum despite the lack of a issuance cap.
