Ethereum (ETH) Supply Squeeze: Will Bulls Drive Price to $2,700
The price of Ethereum (ETH) has been struggling to break through the $2,000 range, despite a surge in staking activity on the Ethereum 2.0 network. While on-chain data indicates the possibility of an Ethereum supply squeeze, the recent downtrend in burn rate suggests that a significant price increase may not be imminent.
Ethereum Staking Activity at All-Time High
According to Glassnode , Ethereum staking reached an all-time high in May 2023. In the following month, even more ETH coins were locked up, bringing the total staked ETH to approximately 30.6% of the circulating supply. This increase in staking activity reduces the number of tokens available for market orders, potentially leading to a supply squeeze.
Unlikeliness of Ethereum Supply Squeeze
Despite the surge in staking activity, the burn rate of Ethereum has been on a downtrend. The burn rate refers to the percentage of existing coins that are taken out of supply through burning or reducing newly created coins. In May 2023, there was a spike in burn rate due to the memecoin trend triggered by PEPE. However, since then, the burn rate has significantly declined.
Impact of Fees Burned
Fees Burned on the Ethereum network is a deflationary mechanism that permanently destroys some of the fees issued to node validators, thus reducing the overall supply of ETH. When Fees Burned increases, more ETH is taken out of circulation, which can contribute to a supply shortage and price surge. However, the recent reduction in Fees Burned balances out the impact of the staking surge, which is one reason why an Ethereum supply squeeze has not yet occurred.
Price Prediction for ETH
Based on current trends and on-chain data, it is likely that Ethereum will experience a correction and drop below $1,800 before making another attempt at the $2,000 milestone. Initial support could be found around $1,850, where many investors purchased ETH. However, if this support level breaks, ETH could drop further to around $1,750.
On the other hand, if the bulls manage to break through the $2,000 resistance, the price of ETH could potentially surge towards $2,700. However, the significant sell-wall mounted by holders who bought ETH at lower prices could pose a challenge for the bulls.
While the surge in Ethereum staking activity suggests the possibility of a supply squeeze, the downtrend in burn rate and reduction in Fees Burned balance out the impact. As a result, it is unlikely that ETH will experience a significant price increase in the near term. However, future developments in staking and burn rate could play a key role in determining the direction of Ethereum’s price.