The Ethereum network is staking a substantial portion of Ether’s supply, unlike Bitcoin. On-chain data indicates that staking contracts lock over 27% of the total Ether supply, generating yield for their owners.
By Anisha Pandey
Edited by Julia Sakovich
Updated
3 mins read
The United States Securities and Exchange Commission (SEC) appears ready to approve spot Ethereum exchange-traded funds (ETFs), significantly turning the trajectory in which the digital asset sector is moving.
Joseph Lubin, co-founder of Ethereum and CEO of Consensys, shared the impact that the approval of ETF applications would have on ETH with DL News. Notably, Lubin predicted a supply crunch for ETH following a significant surge in demand.
Lubin highlighted the likely surge in institutional interest in Ether following the approval of spot ETH ETF applications by the SEC.
“Institutions that have already gained exposure to Bitcoin through the asset’s freshly launched ETFs will most likely want to diversify into that second approved ETF,” Lubin stated while emphasizing the “natural, pent-up pressure to purchase Ether” that these ETFs would unleash.
The potential approval of spot Ethereum ETFs following approval given to spot Bitcoin ETFs in January. The Bitcoin ETFs saw authorized participants – firms tasked with purchasing Bitcoin for the ETFs – buying idle coins from exchanges or over-the-counter (OTC) counterparties.
However, ETH ETFs might have a more prominent effect.
Currently, the Ethereum network is staking a substantial portion of Ether’s supply, unlike Bitcoin. On-chain data indicates that staking contracts lock over 27% of the total Ether supply, generating yield for their owners. This substantial amount of staked Ether effectively reduces the available supply for ETF-related purchases.
A similar analysis was shared in a post on X by Dan Kazenoff, a founding member of BeetsDAO. Kazenoff echoed similar points, adding that ETH ETFs cannot be staked while highlighting that the world is “finally waking up to Ethereum”.
Lubin noted that the core protocol, DeFi systems, and DAOs consume substantial ETH which will affect the available supply for new ETF inflows. Therefore, ETH’s market value, which is already more reactive to inflows because of its lower market cap compared to Bitcoin, may experience increased volatility.
Further, Lubin expects renewed activity on the Ethereum network to burn a considerable amount of ETH over time. Interestingly, the burn mechanism is part of Ethereum’s fee structure and could limit the ETH available for ETFs, leading to a supply crunch.
During the debut of BTC ETFs, Banking institutions like Bank of America Corp.’s Merrill arm and Wells Fargo & Co.’s brokerage unit decided to offer BTC ETF products to their clients, as per a report.
The digital asset sector could witness similar movements and the supply crunch for Ethereum ETFs could be even more pronounced due to constrained supply.
Lubin described the potential approval of Ethereum ETFs as a “profound watershed moment” for both Ethereum and the broader crypto industry. The expected supply crunch could drive Ether’s price higher. The price of ETH rose 29.6% in seven days, marking a 108.7% increase in the past year.
As previously reported, Standard Chartered predicted that Ether could potentially hit the $8,000 price level this year if the SEC greenlights ETH ETF applications filed by leading institutions like BlackRock, VanEck, and Fidelity.
Disclaimer: Coinspeaker is committed to providing unbiased and transparent reporting. This article aims to deliver accurate and timely information but should not be taken as financial or investment advice. Since market conditions can change rapidly, we encourage you to verify information on your own and consult with a professional before making any decisions based on this content.
With a background in finance and a passion for innovation, Anisha has been covering the ever-evolving world of crypto for over four years. Her deep understanding of the crypto market have made her a trusted source for analysis and news. Whether it's dissecting the latest trends or decoding whitepapers, Anisha is dedicated to bringing clarity to the world of digital assets.
