A new crypto project that aims to burn tokens from Ether is behind Ethereum’s deflationary turn.

Ethereum’s native token, Ether

to mark

, appears poised for a massive rally due to a combination of technical and fundamental factors.

From a technical perspective, the ETH price is now forecasting a 35% rally by the end of October after testing a key support level. This level is an ascending trend line that ended Ether’s downside attempts since June 2022, as shown below.

ETH/USD weekly price chart. Source: TradingView
In other words, traders have shown interest in buying Ethereum tokens near this level in recent weeks. Meanwhile, the accumulation sentiment pushed the price higher to another significant level: a horizontal trendline resistance at $1800, about 35% above the current price.

Ether supply drops by 6K ETH
The bullish technical outlook for Ether continues based on the depletion of its supply in recent days.

The Ether supply is down by nearly 6,000 ETH, or about $7.9 million, since October 8. This marks the Ethereum network’s first deflationary move, where more ETH is destroyed than created, since its switch from proof-of-work (PoW) to proof-of-stake (PoS) via Merge a month ago.

Ethereum supply from Merge. Source: Ultraschall.Money
Users must pay so-called gas fees to validators to confirm their on-chain Ethereum transactions. Historically, more traffic on the Ethereum network has led to higher gas fees and more revenue for validators.

But after the EIP-1559 August 2021 update, part of the gas fee will be permanently removed from the ether circulation. Simply put, more ETH is burned in a high demand environment.

The same thing started happening after October 8, with evidence showing that a new crypto project called XEN Crypto is increasing network traffic. In the last seven days, XEN Crypto contributed to the burning of 4,490 ETH tokens against 16,690.52 ETH tokens.

Ethereum Burn Review Source: Ultrasound.Money
XEN Crypto started the weekend without supply.

Nevertheless, it was free, requiring users to pay only ETH gas fees. In other words, a new project has made Ether deflationary for the first time since the Merge, which currently accounts for more than 40% of all Ethereum transactions.

ETH price long-term outlook remains bearish
However, Ethereum’s long-term outlook has tilted to the downside due to ongoing macroeconomic warnings led by the US Federal Reserve’s interest rate hikes due to strong inflation. Ether remains susceptible to these risks due to its consistently positive correlation with US stocks.

ETH/USD and Nasdaq Composite daily correlation coefficient. Source: TradingView
Therefore, a drop below the current support of the ascending trend line of Ether, as explained above, could mean further declines in the event of a technical failure, as shown in the chart below.

ETH/USD weekly price chart with an ascending triangle breakdown. Source: TradingView
Ascending triangles are continuation patterns that resolve after price breaks in the direction of its previous trend. In the case of ETH, the predominant trend is down, which suggests that the next course of the token will be bearish if it breaks below the support of the ascending trend line of the triangle.

Related: Why is the crypto market down today?

As a general rule, an ascending triangle breakout causes the price to rise to a level of a length equal to the height of the triangle. Therefore, ETH’s profit target is close to $750, about 40% below the current price.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.

Source: CoinTelegraph