Ethereum supply has been increasing by 60,000 ETH monthly since April 2024, raising concerns among investors. The upcoming spot Ethereum ETF approval might help absorb some of this surplus, with analysts predicting a critical market shift in September 2024.
Ethereum Supply Surging
Ethereum’s supply has been increasing rapidly. Since April 2024, it has grown by about 60,000 ETH per month. This surge totals 150,000 ETH over the past three months. Analysts are concerned that if this trend continues, the supply could revert to pre-Merge levels by December. This would counteract the deflationary impact achieved by the Merge, which transitioned Ethereum to a proof-of-stake model in September 2022.
If the supply of #ETH keeps increasing by ~60k/month like it has been since April, then by Dec the supply will be back to what it was at the merge.
Could be a narrative that people focus on later this year, when they should actually focus on monetary policy.
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— Benjamin Cowen (@intocryptoverse) July 19, 2024
Ethereum ETF Approval
The upcoming approval of the spot Ethereum ETF is generating significant excitement. Major players like BlackRock, Fidelity, and Grayscale are entering the market. Investors expect strong inflows into these ETFs, which could help absorb the surging supply. However, some analysts caution that the excitement might lead to a sell-the-news event, where initial gains are followed by a price dip as the novelty wears off.
Potential Impact on Ethereum Prices
The surging supply of Ethereum poses a potential threat to its price stability. If the supply continues to increase at the current rate, it could lead to a decline in Ethereum’s price. Historical patterns suggest a possible price dip following the initial excitement around the ETF approval. This pattern mirrors past events where price rallies were followed by corrections as the market adjusted to new supply levels.
Market Analysts’ Views
Analyst Benjamin Cowen notes that monetary policy will play a crucial role in Ethereum’s price movement. He suggests that unless there is a shift in the Federal Reserve’s policy towards quantitative easing, significant price surges are unlikely. Additionally, Cowen anticipates that the ETH/BTC trading pair might see final capitulation in September 2024, which could coincide with a period of market adjustment post-ETF approval.
Will the Ethereum ETF Absorb the Surplus?
The introduction of the spot Ethereum ETF might absorb some of the increasing supply. Market expectations are high, with predictions of multi-billion dollar inflows by the end of 2024. However, this absorption might not happen immediately. Analysts suggest that while the ETF could provide a buffer, it may take time for the market to adjust fully to the new dynamics.
Matt Hougan, Chief Investment Officer at Bitwise Asset Management, forecasts a bright future for Ethereum. He predicts it will surpass its all-time high by year-end, trading above $5,000. However, Hougan believes the launch of Ethereum ETPs could be choppy. This is because money might flow out of the $11 billion Grayscale Ethereum Trust (ETHE) after it converts to an ETP. Notably, he points out that ETPs have historically absorbed more supply than new production. Consequently, this could push prices higher. Furthermore, with Ethereum’s near-zero inflation rate and reduced selling pressure from staked coins, Hougan anticipates a perfect storm for Ethereum’s price surge. The interplay between increasing supply and investor demand through ETFs will be critical. It will determine Ethereum’s price trajectory in the coming months.
In conclusion, while the Ethereum ETF approval brings optimism, the surging supply of Ethereum remains a significant concern. Investors and analysts will closely watch how these dynamics unfold, influencing Ethereum’s market performance in the near future.
