TL;DR
- Approval of Ethereum ETFs by the SEC is expected, which could generate high demand for Ether.
- A large portion of the Ether supply is locked in staking, DeFi protocols, and DAOs.
- Joe Lubin warns that this could cause a significant shortage of Ether in the market.
The possible approval of Ethereum (ETH) ETFs by the United States Securities and Exchange Commission (SEC) has generated great excitement in the cryptocurrency market.
Joe Lubin, co-founder of Ethereum and CEO of Consensys, has warned in an exclusive interview with DL News that this approval could trigger a shortage of Ether (ETH) due to the growing demand that these ETFs could cause.
With the ETF approval probability increased to 75% by Bloomberg analysts, institutional investors who have already diversified their portfolios with Bitcoin ETFs will likely look to do the same with Ethereum ETFs.
This sudden, massive interest could place significant pressure on the already limited supply of ETH.
One of the main reasons for this potential shortage is that a considerable portion of Ether is locked in various applications within the Ethereum ecosystem.
Over 27% of the total ETH supply is staked, meaning these tokens are earning yield for their owners and are not available on the market for immediate purchase.
Additionally, a large amount of Ether is embedded in Decentralized Finance (DeFi) systems and Decentralized Autonomous Organizations (DAOs), further reducing available liquidity.
Furthermore, activity on the Ethereum network also contributes to the reduction in Ether supply.
The implementation of the transaction fee model (EIP-1559) implies that a portion of the Ether is burned with each transaction, permanently removing it from the circulating supply.
This burning mechanism additionally strains the availability of ETH, especially during times of high network activity.
Impact of ETFs on the Ethereum Market
The approval of Ethereum ETFs could be a watershed moment not only for Ethereum, but for the entire cryptocurrency industry.
As ETFs become accessible, institutional demand is expected to grow considerably.
This institutional demand, combined with the limited supply of Ether, could lead to a significant increase in the price of ETH.
Historically, when Bitcoin ETFs were launched, financial institutions showed an insatiable appetite to acquire Bitcoin, even going as far as trading with mining operations to ensure adequate supply.
We are likely to see a similar situation with Ethereum, but amplified due to the aforementioned supply constraints.
ETH lower market capitalization compared to Bitcoin also plays a crucial role.
Ethereum‘s relatively lower market value makes its price more sensitive to large capital inflows, which could result in steeper price increases when ETFs begin trading.
