ETH Staking Surges as Reserves Decline: Could This Lead to Less Volatility?
The popularity of Ethereum (ETH) staking has been on the rise, resulting in a decrease in the reserves held by exchanges. This trend is expected to have a positive impact on the volatility of ETH, potentially leading to more stable prices in the future.
Increase in Staking Drives Down Exchanges’ ETH Reserves
Since the Shapella Upgrade went live in April 2021, there has been a significant increase in interest and participation in Ethereum staking. This can be attributed to the fact that users now have the freedom to withdraw their holdings at any time, which has restored credibility in the staking process.
As a result, the amount of ETH staked as a percentage of the total circulating supply has risen from 15% to 24.5%, according to a recent analysis by AMBCrypto of CryptoQuant data. This surge in staking has occurred despite a decrease in staking yields, indicating strong demand for staking among ETH holders.
Declining Liquid Supply Creates Scarcity
In contrast to the increasing popularity of staking, the reserves of ETH held on exchanges have been steadily declining. Currently, the liquid supply of ETH stands at just around 11%, creating scarcity in the market.
Scarcity is a fundamental driver of demand for an asset, as seen in the cases of gold and bitcoin. With the continued uptick in staking deposits, ETH has become increasingly elusive for trading, further enhancing its scarcity.
Decreased Volatility: A Result of Locked-Up ETH
The increasing number of ETH coins being locked up through staking has been instrumental in reducing the volatility of the cryptocurrency. As more ETH gets locked up, the supply available for active buying and selling decreases, leading to steadier prices.
On-chain analyst Leon Waidmann has observed this trend and predicts that it will eventually lead to a “massive price explosion” for ETH, as the scarcity of the asset continues to increase.
ETH Price on the Rise
At the time of writing, ETH is trading at $2,454, with a notable increase in value over the past month. This positive performance has helped stabilize the overall crypto market, which has experienced significant sell-offs in Bitcoin following the launch of spot ETFs.
Conclusion
The surge in Ethereum staking and the simultaneous decline in ETH reserves held by exchanges indicate a shift in the market dynamics for the cryptocurrency. The increasing scarcity caused by more ETH being locked up through staking has the potential to reduce volatility and create more stable prices in the future, making ETH an attractive option for investors seeking a store of value.
Analyst comment
Positive news.
As an analyst, the surge in Ethereum staking and declining ETH reserves held by exchanges suggest a shift in market dynamics. The increasing scarcity caused by locked-up ETH could reduce volatility and create more stable prices, potentially leading to a “massive price explosion” for ETH. Investors may find ETH more attractive as a store of value.
