Ether worth more than $3 billion has been drawn from cryptocurrency exchanges following the U.S. Security Exchange Commission’s approval of Ether spot ETFs last month, signaling an impending supply shortfall. Just prior to the announcement, the regulator initiated talks with possible issuers and later granted approval for multiple 19b-4 forms to list the ETFs.
The ETFs weren’t immediately ready for trading, as issuers are required to file their S-1 registration statements weeks before the ETFs can be launched. Analysts predict that the first batch of these ETFs could debut in late June.
CryptoQuant data indicates that Ether holdings on exchanges decreased by around 797,000 since the ETFs approval, amounting to $3 billion. A reduction in exchange reserves suggests that fewer coins may be available for purchase as investors transfer their holdings to self-custody for uses other than immediate sale. Additional data by BTC-ECHO researcher Leon Waidmann from Glassnode reveals that the proportion of Ether circulating on exchanges has dropped to 10.6%, the lowest point in recent years.
According to some analysts, the launch of Ether spot ETFs would cause Ether to rise above its record high of $4,870 in 2021 because of higher demand, which would have a similar effect as when Bitcoin spot ETFs started trading in January. In fact, Ethereum might experience greater demand pressure compared to Bitcoin, as noted by DeFi cryptocurrency analyst Michael Nadeau in his May 28 analysis. Unlike BTC miners, who must occasionally sell Bitcoin to cover operating costs, Ethereum validators don’t face the same operational expenses.
Concerns exist over how Grayscale’s Ether Trust, which oversees $11 billion in assets, could affect the price of Ether as well. This stems from the performance of its BTC trust — GBTC — which experienced $6.5 billion in withdrawals within the first month following approval.
Most recently, Ether is trading at $3,781, reflecting a 0.82% decrease and a decline of around 23% from its record, as reported by CoinMarketCap.
Analysts and investors will be closely watching how the launch of Ether ETFs affects Ethereum’s future and the larger crypto market as the market adapts to these changes. This period of transition will be crucial in shaping the future trajectory of Ethereum and its role within the evolving financial ecosystem. A supply squeeze brought on by the decrease in available supply could raise prices as demand rises.
Entities such as Marathon Digital Holdings Inc. (NASDAQ: MARA) and other crypto industry actors are likely to watch how markets respond to the Ethereum ETFs once those entities start trading on the open market.
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