After hitting its latest all-time high of $4,956 on August 23 on Binance, Ethereum has been trading in a tight range – oscillating between $4,200 to $4,500 – giving little clues about its next potential direction. However, recent exchange data indicate that a supply crunch for ETH may be approaching.
During the period between August 16 to September 3, Ethereum’s Binance Exchange Supply Ratio (ESR) experienced a significant drop. Although ETH’s price has remained in the mid $4,000 range, its ESR tumbled from 0.041 to 0.037 – marking the biggest decline within the observed period – in a matter of just two weeks. It’s important to note that ETH’s price has shown stability throughout this duration, hovering around $4,400 as the period concluded. According to the analyst, such price behavior can explain two things. Initially, it indicates that investors are pulling funds from exchanges – Binance included – at a faster rate. Additionally, it demonstrates increasing trust among ETH holders as they choose to utilize self-custody in cold wallets rather than maintaining their assets on exchanges. We noted that a blend of stable pricing, decreasing exchange supply, and robust ETF inflows indicates that the sellable supply is diminishing while the demand for the digital asset continues to be strong.
Historically, declines in ESR have come before significant upward movements, as reduced exchange liquidity restricts sellers from driving prices lower. The current ESR levels have reverted to figures seen before June, indicating that the market has successfully “flushed out” earlier profit-taking actions and is now in the process of reaccumulating supply into long-term wallets. The analyst concluded by stating that if ETH’s ESR continues to decline without a matching drop in price, it would indicate that the market is entering a new bull cycle driven by institutional investors. Three specific metrics bolster this prediction. The ETH market has experienced a recent decline in leverage, indicating a reduction in the number of traders engaging in speculative positioning. Additionally, the majority of perpetual futures markets display neutral funding rates for ETH contracts. Ultimately, the on-chain activity by ETH whales has diminished, indicating that long-term holders are holding onto their assets. It is important to highlight that the fundamentals of the Ethereum blockchain are consistently enhancing.
Recent data indicates that approximately 36 million ETH has been staked on the ETH network, heightening the likelihood of a potential supply shock. Ethereum daily transactions reached a peak not seen in the past year. In light of these positive trends, experienced professionals in the field are confidently sharing their optimistic forecasts for ETH prices. At press time, ETH is experiencing a decline of 1.7% over the last 24 hours.