Why Ethereum Could See An 'Extraordinary' Supply Shock

Ethereum ETH/USD is trading above $3,200 once again, but market dynamics imply that the second largest cryptocurrency could be headed for much higher prices.

What Happened: Earlier today, Benzinga reported that nearly $63 million worth of ETH was moved off the crypto exchange Binance. When whales move large amounts of cryptocurrency off exchanges and into cold storage, the intent is usually to hold and accumulate in anticipation of the value of the asset increasing over time.

“ETH Supply on Exchanges continues its downward trend as it took sharp dips over the past two weeks regardless of the price action, and is now hitting its lowest in the past 6 months,” commented on-chain analytics provider Santiment.

“Looking good so far, as it indicates that market participants are shifting to accumulate and HODL mode where possible,” they added.

While ETH supply moving off exchanges lowers the sell-pressure on the asset, there are many other factors currently at play contributing towards an Ethereum supply shock.

Since EIP-1559 was deployed on the mainnet in August, more than 400,000 ETH worth $1.3 billion has been burned.

Ethereum supply shock well and truly at all time highs.

Looks like the market overpriced it in May but is probably underpricing it July / August. pic.twitter.com/PIUKN6DLv9

— Willy Woo (@woonomic) August 10, 2021

ETH issuance is set to decrease even more when the network transitions to a fully Proof-of-Stake consensus mechanism. Analysts estimate once transaction fees go to stakers instead of miners, the annual percentage yield (APY) on staked ETH will increase significantly.

My point is that I believe EIP-1559, staking & the merge will contribute to a supply shock never seen before on $ETH

We also have factors like:
-27% of $ETH locked in smart contracts
-$85B TVL in DeFi
-NFT hype
-Stablecoins growing more than $60B this year
I hope you enjoy! 🥐

— croissant (@CroissantEth) September 13, 2021

“The Ethereum supply is melting like an athlete running a marathon on a hot summer day,” said CryptoQuant analyst TheBullduck.

“When we look at the CQ ETH 2.0 Staking Rate data, it shows us that more than 6% of the total supply is locked to ETH 2.0.”

As demand for ETH continues to rise, but its supply diminishes over time, market participants expect a supply shock unlike any other on Ethereum.

ETH Price Action: At press time Friday morning, Ethereum was trading at $3,212.10 gaining more than 7% over 24-hours.

Photo: Cedrik Wesche on Unsplash