Almost one third of Ethereum’s existing total supply is currently staked in contracts. This in turn produces a significant, short-term supply shock, which would put upward pressure on prices. As anticipation mounts for Ethereum staking ETFs and now other types of Ethereum ETFs, that approval may come by year’s end. Therefore, the Ethereum deflationary effect has sharply accelerated. This change has led to a dramatic decrease in the supply of Ethereum. Consequently, a massive supply shock was created by Ethereum’s staking contracts.

So far, over 29% of Ethereum’s total supply is locked in staking contracts. Not surprisingly, supply shocks are only going to get worse. This is probably in large part to the potential approval of Ethereum staking ETFs before the end of the year. Furthermore, these ETFs would further concentrate capital into staking, compounding the effect of draining liquidity from the open market.

On average, over 140,000 ETH ($393 million) net ETH have been withdrawn from exchanges per day. Consequently, this exodus has placed greatly reduced available supply of Ethereum for trading.

Ethereum’s price today is about $3,000. Even with this increase, it is still about 38% below its all-time high of over $3,000 in November of 2021.

Speculation by hedge funds is pushing the supply crunch to greater extremes. They pick up arbitrage between futures contracts listed on the Chicago Mercantile Exchange (CME) and the cash market via basis trades. As such, these trades play a role in the growing scarcity of Ethereum.

Analysts believe these supply constraints will push Ethereum’s prices up. Moreover, staking rewards may help propel the crypto to a new all-time high within this market cycle. Others are even more optimistic, projecting upwards of a $10,000 price target for Ethereum.

At the same time, open interest in leveraged short positions in Ethereum has fallen off a cliff, peaking at – 13,291 contracts. In fact, since the start of 2023, leveraged short positions have lost a historic amount. This transition represents a very public and powerful reversal in market sentiment.