Last year, a major update had completely transformed ETH. Since the Shapella Upgrade in April 2023, there has been a noticeable increase in interest from both old investors and newcomers in staking Ethereum (ETH). The ability for investors to withdraw their assets at any time has re-established a secure environment in the process and paved the way for a greater amount of ETH to be staked on the network.
Current Status of ETH Staking
According to an analysis based on CryptoQuant data, the amount of ETH staked from the total circulating supply was at 15% before last year’s upgrade, and as of the time of writing, it has risen to 24.5%.
Interestingly, despite the increase in staking demand and the consequent significant decrease in returns, investors have not given up on staking. When the annual financial return for validators was calculated, the rate that was 5.2% in June 2023 had fallen to 3.64% as of the time of writing.
On the other hand, looking at the reserves of ETH in exchanges, as of the time of writing, there was only about an 11% liquid supply, indicating a multi-year downward trend. To put it more simply, due to the significant decrease in the number of ETH coins held in exchanges for active buying and selling, a scarcity has formed in the market.
Why the Liquidity Drop in ETH is Important
When examining the foundation of the economy from the past to the present, a decrease in the number of an asset, assuming consistent or increasing demand, leads to a price increase. To give an example on the subject, this situation can be understood from the example of gold and, upon closer examination, Bitcoin (BTC).
However, unlike Bitcoin, Ethereum’s supply is unfortunately not limited. For this reason, the increasing stake deposits have created a complex situation for investors planning on ETH and market analysts.
On the other hand, the staking of ETH and the reduction of its circulating number will eventually lead to a decrease in volatility. Such an event could bring stability to the price’s volatile nature or push the price upwards, making ETH more valuable.
On-chain analyst LeonWaidmann‘s views on the subject were as follows:
We are witnessing an ETH scarcity like never before, overshadowing all past Bullruns! Eventually, this supply crunch will lead to a major price explosion.
According to data from 21milyon.com, the price of ETH at the time of writing was $2,474, representing only a 0.13% increase in the last 24 hours.
