Since the approval of spot Ether exchange-traded funds (ETFs) in the United States on May 23, over $3 billion worth of Ether has been withdrawn from centralized exchanges, signalling a potential supply squeeze in the market.
Significant Ether Withdrawals Point to Supply Squeeze
According to data from CryptoQuant, approximately 797,000 ETH, worth $3.02 billion, were withdrawn from centralized exchanges between May 23 and June 2. This significant outflow suggests that investors are moving their holdings to self-custody, reducing the amount of Ether available for immediate sale on exchanges.
Ether Supply on Exchanges Hits Historic Low
Further analysis by BTC-ECHO’s Leon Waidmann, using data from Glassnode, reveals that the percentage of circulating Ether held on exchanges has dropped to its lowest level in years, now at just 10.6%. This reduced supply could lead to increased demand pressure on Ether, especially with the anticipated launch of spot Ether ETFs.
📉 Exchange balances for both #Bitcoin and #Ethereum are at their lowest levels in years!🔥
Whales continue to accumulate. #BTC on exchanges is down to 11.6% and #ETH is at 10.6%!
Supply squeeze incoming. 📈
Get ready for the next big move. 🚀 pic.twitter.com/u4j13DZBJk
— Leon Waidmann | On-Chain Insights🔍 (@LeonWaidmann) June 2, 2024
Potential Impact of Ether ETFs on Market Dynamics
Bloomberg ETF analyst Eric Balchunas has noted a “legit possibility” of spot Ether ETFs launching by late June. The introduction of these ETFs could drive significant demand for Ether, potentially pushing its price beyond its previous all-time high of $4,870, similar to the effect seen with Bitcoin following the introduction of spot Bitcoin ETFs in January.
Comparing Ether and Bitcoin Market Dynamics
DeFi analyst Michael Nadeau points out that Ether may benefit more from demand pressures than Bitcoin due to its lower “structural sell pressure.” While Bitcoin miners often sell BTC to cover operational costs, Ethereum validators do not face the same financial pressures, which could lead to stronger price performance for Ether.
Concerns Over Grayscale’s Ethereum Trust
However, there are concerns about the potential impact of Grayscale’s Ethereum Trust (ETHE), which manages $11 billion in assets. If ETHE experiences significant outflows similar to those seen with the Grayscale Bitcoin Trust (GBTC), it could negatively impact Ether’s price.
Political Influences on Ethereum ETF Approval
Bloomberg ETF analyst James Seyffart believes the approval of spot Ethereum ETFs was likely influenced by political considerations rather than purely financial ones. Seyffart suggested that the Biden administration and the broader political climate played a significant role in the approval process.
Also Read: SEC’s Ethereum ETF Approval Sparks Legal Debate
Future of Crypto ETFs Beyond Ether
Seyffart also noted that the approval of additional crypto ETFs, such as Solana, would require substantial regulatory changes. A regulated market is essential to monitor these assets for fraud and manipulation. Contrarily, crypto investor Brian Kelly has speculated that Solana could be the next cryptocurrency to receive ETF approval in the U.S., following Bitcoin and Ethereum.
Conclusion
The significant withdrawal of Ether from exchanges and the anticipation of Ether ETFs are reshaping the cryptocurrency landscape. While political and market dynamics continue to evolve, the potential supply squeeze and increased demand could set the stage for Ether’s future performance. Investors and analysts alike are closely watching these developments, anticipating the next major moves in the crypto market.
Discussion about this post