The ETH supply crunch continues to intensify and could set the stage for a strong recovery for the world's largest altcoin by market cap.

In fact, according to on-chain analyst Leon Waidmann, the ETH supply crunch is exacerbated by falling exchange reserves and growing investor demand for ETH staking. He predicts that ETH could “fly” amid the supply crunch.

“The ETH supply crunch is getting worse. With staking rates skyrocketing and transaction reserves plummeting, as soon as sellers run out and demand increases, ETH will fly!”

Source: CryptoQuant

It is worth noting here that exchange ETH reserves have hit a new low of 18.5 million in the past 24 hours. This is still lower than the peak of 35 million recorded in 2020.

ETH Fundamentals Are Strong, But…

Additionally, the analyst highlighted the strong fundamentals of the ETH ecosystem, citing record-high transaction volumes and stablecoins.

“Transaction volume: all-time high of 15.6 million. Stablecoin market cap: all-time high of $9.79 billion. Fundamentals stronger than ever!”.

Source: Growthepie

This is a sign of strong growth in the ETH network, which could be a positive bullish catalyst under normal circumstances.

However, the altcoin has been lagging behind due to negative market sentiment for most of August, as shown by the Taker Buyer Sell Ratio. This metric tracks the buying versus selling volume of altcoins in the derivatives market.

The overwhelmingly negative reading in August suggests that sellers dominate the market. This negative sentiment on the side may partly explain the muted price action on the chart.

Source: CryptoQuant

Part of the negative sentiment is also due to the apparent low fees and concerns about inflation in the ecosystem, especially since the introduction of blobs, which make transaction costs cheaper on-chain.

Source: Thor Hartvigsen

According to a statement by Ethereum community member Ryan Berckmans, the chain's revenue will improve as blob usage increases.

“For Ethereum L1 revenue, the future is extremely bright.”

Another analyst agrees with this outlook and predicts ETH will hit $10,000 from blob space usage alone.

At the time of writing, ETH is trading at $2,517, down nearly 5% on its weekly chart from its recent high of $2,800 late last week.



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