In a whirlwind of excitement, Ethereum (ETH), the second-largest cryptocurrency, soared nearly 20% on Monday, a rally that extended into Tuesday. The catalyst? Growing buzz surrounding the potential approval of spot Ethereum exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC).
However, amidst the euphoria, a crucial problem arises, as highlighted by Joe Lubin, Ethereum’s co-founder and Consensys CEO.
Read on to find out.
Speaking to DL News, Lubin explained that institutions that have already gained exposure to Bitcoin through its recently launched ETFs will likely seek to diversify their portfolios by investing in Ethereum ETFs. He highlighted a substantial “natural, pent-up pressure to purchase Ether” through these ETFs.
This demand surge is expected to be more intense than that experienced during the approval of spot Bitcoin ETFs earlier this year.
Unlike Bitcoin, Ether faces several unique supply constraints. Firstly, over 27% of Ether’s total supply is currently staked across the Ethereum network. These staked tokens are locked in contracts and earn yields for their owners, making them unavailable for immediate purchase by ETFs.
But there’s more. Ether is deeply entrenched in core protocol operations, DeFi platforms, and DAOs, further limiting its liquid supply for ETFs.
Finally, increased activity on the Ethereum network results in a substantial burn of Ether supply over time, as per the network’s fee-burning mechanism introduced with the EIP-1559 upgrade. This ongoing burn will further constrain the available supply.
Looking ahead, Lubin noted that Ether’s market value trails Bitcoin’s, making its price more responsive to inflows. With demand surging and supply constrained, a significant price surge seems imminent.
“This could be a pretty profound watershed moment for Ethereum and the crypto industry as a whole,”
The impending approval of Ethereum ETFs could catalyze substantial changes in the market dynamics, highlighting the importance of understanding these unique supply constraints.
Ethereum’s fate now hinges on the SEC’s verdict. Approval could propel prices higher, while rejection might trigger a retreat. In the last 24 hours, ETH surged by 21.88%, with purchasing activity up by 336%, according to CoinMarketCap.
Also Check Out: Ethereum Price Analysis: To Buy or Not To Buy Before The ETF?
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