Ethereum
Spike in Ether Demand Could Lead to Supply Crisis, Ethereum Co-Founder Warns
Ethereum (ETH), the second-largest cryptocurrency by market value, surged nearly 20% on Monday and continued to grow on Tuesday. This came just after the Securities and Exchange Commission (SEC) expressed interest in approving Ethereum spot exchange-traded funds (ETFs) after months of anticipation. However, there is a catch here; This potential approval could lead to a significant supply shortage of Ether (ETH), according to Joe Lubin, co-founder of Ethereum and CEO of Consensys.
Institutional demand and diversification
Speaking to DL News, Lubin explain that institutions that have already gained exposure to Bitcoin through its recently launched ETFs will likely look to diversify their portfolios by investing in Ethereum ETFs. He pointed to “substantial natural and pent-up pressure to buy Ether” through these ETFs. This surge in demand is expected to be more intense than that experienced when spot Bitcoin ETFs were approved earlier this year.
Unique supply constraints and market impact
Unlike Bitcoin, Ether faces several unique supply constraints. First, over 27% of the total Ether supply is currently distributed across the Ethereum network. These staked tokens are locked into contracts and generate returns for their owners, making them unavailable for immediate purchase by ETFs.
When you think about it, a lot of Ether is tied to core protocol functions, decentralized finance (DeFi) systems, and decentralized autonomous organizations (DAOs). This further limits the liquid supply of Ether available for ETF consumption.
Finally, increased activity on the Ethereum network results in substantial ether consumption over time, consistent with the network’s fee burn mechanism introduced with the EIP-1559 upgrade. This continued burn will further limit the available supply.
Moving on to the market impact, Lubin noted that the market value of Ether is currently lower than that of Bitcoin, making its price more responsive to inflows. High demand and limited supply could cause prices to rise significantly.
Will this be a watershed moment for Ethereum?
“This could be a pretty profound turning point for Ethereum and the crypto industry as a whole,” Lubin said.
The imminence approval of Ethereum ETFs could catalyze substantial changes in market dynamics, highlighting the importance of understanding these unique supply constraints.
In particular, the expected approval of Ether ETFs highlights the importance for investors to consider the impact of limited supply and increased market activity on the future value of Ethereum.
Currently, the fate of Ethereum depends on the SEC’s next decision. Approval could lead to further price increases, while rejection could trigger a decline. ETH surged 21.88% in the last 24 hours, accompanied by a significant increase in buying activity, up 336% according to CoinMarketCap data.
Also discover: Ethereum Price Analysis: To Buy or Not to Buy Before ETF?