A newly approved spot Ethereum exchange-traded fund (ETF) could create a supply shortage for the second-largest cryptocurrency by market cap.
The amount of Ethereum available on centralized exchanges has fallen to an eight-year low, with just 12.78 million ETH in circulation, roughly 11% of the total supply.
A sudden increase in Ethereum demand is expected
Analysts have noted that investors are withdrawing ETH from exchanges amid a surge in institutional demand. Such a drop in exchange balances is usually a bullish sign, as it indicates that investors are expecting prices to rise and have no plans to sell their holdings in the near term.
This week, the U.S. Securities and Exchange Commission (SEC) approved several Ethereum ETFs, which many believe could boost demand for the cryptocurrency.
Alluvial CEO Mara Schmiedt noted that spot Bitcoin ETFs have attracted significant institutional interest since their launch in January. These ETFs currently hold 800,000 BTC, signaling growing institutional interest. As a result, she predicts that we may see similar demand for Ethereum, which could create a major demand shock.
“What happens if $20 billion is taken out of the market? That could be a tipping point in terms of demand and supply. We've never seen such an abrupt demand shock in the market before,” Schmied said.
Read more: How to invest in Ethereum ETFs?
Notably, ETH has already experienced a surge in institutional activity: Blockchain analytics platform IntoTheBlock reported that anticipation of an Ethereum ETF approval has driven on-chain trading volume to a two-year high of $15.98 billion, driven primarily by crypto whales.
Of the $15.98 billion, $14.33 billion was primarily from whales trading above $100,000, accounting for 90% of the day's total volume.
IntoTheBlock explained that the approval of an ETH ETF marks a significant milestone in the acceptance of the cryptocurrency, adding that the move will likely lead to increased ETH whale activity, as seen in recent high volume trading.
“The changing picture, backed by a significant increase in on-chain trading volume, signals growing institutional confidence in Ethereum, a trend that could gain momentum and lead to even bigger market moves,” IntoTheBlock added.
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