Ethereum held on exchanges has dropped to the lowest level in years, signaling an upcoming supply squeeze.
Data from CryptoQuant shows that the amount of ETH held by crypto exchanges has steadily declined this year.
Moreover, since the US Securities and Exchange Commission (SEC) approved spot Ether exchange-traded funds (ETFs), the amount of Ether held by exchanges has dropped by around 797,000.
Crypto market analyst Leon Waidmann believes that the declining supply of ETH on exchanges hints at an incoming supply squeeze.
As per the analyst’s data, the amount of ETH held on exchanges is down by 10.6%, while the amount of BTC is down 11.6% as whale traders accumulate.
Approval of Ethereum ETFs Could Drive Price Gains
Ether was trading at $3,818 as of 02:27 EST on June 3. The largest altcoin gained slightly following the SEC’s approval of spot Ether ETFs on May 23. However, these ETFs are yet to start trading, which has seen ETH stagnate at the $3,800 price level.
Last week, Bloomberg ETF analyst Eric Balchunas predicted that these ETFs could start trading later this month or early July. Analysts believe the price could post significant gains if the products commence trading.
In a report published last week, crypto market analyst Michael Nadeau opined that Ether’s price could benefit from more demand pressure than Bitcoin.
The analyst noted that unlike Bitcoin, which sometimes suffers from selling pressure by miners, Ether’s selling pressure was low.
While the price will likely increase once spot Ether ETFs start trading, some factors that hinder the price growth are still at play. One of these factors is the Grayscale Ethereum Trust (ETHE), which has $11 billion worth of funds.
The Grayscale Bitcoin Trust witnessed consistent outflows for months following the approval of spot Bitcoin ETFs. Analysts believe that a similar price action might be at play. Outflows from ETHE might affect ETH’s price action following the ETF approvals.
Demand for Spot Ether ETFs Will Be Low
The approval of spot Ether ETFs is set to change the regulatory landscape around ETH and possibly see it be classified as a commodity by US regulators.
However, despite much hype around these products, analysts believe the demand will be significantly low compared to Bitcoin ETFs.
According to Balchunas, the demand for ETH ETFs will be a fraction of what has been seen with Bitcoin ETFs.
In his predictions, Balchunas liked Bitcoin to gold and Ether to silver. He noted that silver has a 15% share of the precious metal market. As such, Ether ETFs might only take 20% of the spot crypto ETF market.
Some giant firms on Wall Street, such as BlackRock and Fidelity, are leading the race for Ether ETFs. However, Vanguard, a leading asset manager, has refrained from exposure to the cryptocurrency industry.
