- ETH’s reserves on exchanges have been on a multi-year downtrend.
- Increase in staking could also result in less volatility for ETH.
Users have shown heightened interest in Ethereum [ETH] staking since the Shapella Upgrade went live last year in April.
The freedom to withdraw their holdings at any given point of time restored the credibility in the process, resulting in more number of ETH getting staked into the network.
Staked supply nearing 25%
According to AMBCrypto’s analysis of CryptoQuant data, the amount of ETH staked as a percentage of the total circulating supply jumped from 15% at the time of the upgrade to 24.5% as of this writing.
Source: CryptoQuant
Interestingly, the demand for staking lifted despite a marked drop in staking yields, in pursuit of which users participated in the activity in the first place.
The annualized financial return per validator was 3.64% at press time, down from 5.2% in June 2023.
Source: Validator Queue
Liquid supply continues to plummet
In total contrast, ETH’s reserves on exchanges have been on a multi-year downtrend, with a liquid supply of just around 11% as of this writing.
To put it simply, the number of ETH coins available for active buying and selling has dipped significantly, creating a scarcity in the market.
Source: CryptoQuant
Why does this matter?
In line with economic fundamentals, an asset’s scarcity boosts its demand in the long-term, provided the demand stays consistent.
This has been particularly evident in the case of Gold, and much closer home, in Bitcoin [BTC].
However, unlike Bitcoin, Ethereum’s supply isn’t hard-capped. Hence, the continued uptick in staking deposits acted as a major catalyst towards making ETH elusive for trading.
Moreover, with more ETH getting locked up, the volatility was bound to drop eventually. This could pave way for steadier prices in the future, akin to a store of value.
On-chain analyst Leon Waidmann observed these developments and said,
“We’re witnessing an ETH scarcity like never before, eclipsing all past Bullrun! Eventually, this supply squeeze will lead to a massive price explosion.”
Is your portfolio green? Check out the ETH Profit Calculator
At the time of writing, ETH was exchanging hands at $2,454, with double-digit gains over the past month, according to CoinMarketCap.
The second-largest asset’s monthly performance helped to stabilize the crypto market, which has otherwise witnessed massive Bitcoin sell-offs following spot ETFs launch.
