The approval of spot Ether exchange-traded funds (ETFs) in the United States has led to changes in the cryptocurrency market, particularly concerning the availability of Ether (ETH) on centralized exchanges (CEXes).
According to data from CryptoQuant, over $3 billion worth of Ether has been withdrawn from these platforms since the approval on May 23.
Between May 23 and June 2, the amount of Ether held on centralized exchanges decreased by approximately 797,000 ETH, equivalent to $3.02 billion. This trend indicates that fewer coins are available for immediate sale as investors move their holdings to self-custody for various purposes beyond immediate selling. The decrease in exchange reserves implies a reduction in the liquidity available for trading, which could increase demand pressure on Ether.
Further data from Glassnode, shared by BTC-ECHO analyst Leon Waidmann, shows that the percentage of circulating Ether supply held on exchanges is at its lowest level in years, currently at just 10.6%. This reduction in the available supply may contribute to heightened demand and drive up the price of Ether.
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 Price Impact of Ether ETFs
Bloomberg ETF analyst Eric Balchunas has suggested a “legit possibility” of their launch by late June. The anticipated trading of these ETFs could result in increased demand for Ether, similar to the impact observed with Bitcoin following the introduction of spot Bitcoin ETFs in January. Analysts speculate that this could propel Ether’s price beyond its all-time high of $4,870, achieved in November 2021.
DeFi analyst Michael Nadeau noted that Ether may benefit more from demand pressures due to its lower “structural sell pressure.” Unlike Bitcoin miners who sell BTC to cover mining expenses, Ethereum validators do not face the exact operational costs. This dynamic could contribute to Ether’s stronger price performance.
However, there are concerns regarding the influence of Grayscale’s Ethereum Trust (ETHE), which manages $11 billion in funds, on Ether’s price action. If ETHE experiences outflows similar to the Grayscale Bitcoin Trust (GBTC), it could impact Ether’s price.
Ethereum Trading and Liquidity Trends
The balance of Ether on centralized exchanges has been dropping rapidly since the US Securities and Exchange Commission (SEC) approved spot Ether ETF products. Centralized trading platforms, including Ethereum, are considered the primary avenues for traders to access cryptocurrencies. The availability of Ether on these platforms is being threatened as large amounts of the cryptocurrency are being withdrawn.
Market analysts believe that the full launch of spot Ethereum ETFs could catalyze Ether’s price growth. If Ether experiences similar institutional accumulation as Bitcoin, it could help push the price of Ethereum to new highs. Standard Chartered has postulated that Ether may soar to $8,000 by the end of this year if the best-case scenario plays out.
Beyond the impact of the spot ETF product, Ethereum has other fundamental strengths that could drive its long-term price. The digital currency is inherently deflationary, with small amounts of the token burned from transaction fees, reducing the overall supply in circulation. This deflationary mechanism and increasing demand from institutional investors positions Ether for potential significant growth in the coming months.
Political Influences on ETF Approval
Bloomberg ETF analyst James Seyffart has suggested that the approval of spot Ethereum ETFs was likely influenced by political factors rather than purely financial considerations. In a recent interview, Seyffart indicated that the political climate, including actions by the Biden administration and responses from the crypto community, played a crucial role in the approval process.
While the approval of Bitcoin and Ethereum ETFs has been achieved, the likelihood of other crypto ETFs, such as Solana, being approved still needs regulatory changes. Seyffart noted the necessity of a regulated market to monitor these assets for fraud and manipulation.
On the other hand, crypto investor Brian Kelly has suggested that Solana could potentially be the next cryptocurrency to have a spot ETF in the United States. In a recent episode of CNBC’s ‘Fast Money,’ Kelly asked, “The trade now is, who’s next?” He suggested that Bitcoin, Ethereum, and Solana are the likely candidates for this cycle.
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