- Ethereum is showing signs of a potential price rebound, supported by a decline in exchange supply and robust onchain and derivatives metrics.
- Increased activity in layer-2 solutions and strong investor interest in ETFs further bolster the outlook for a rally above $3,400.
Investors Regain Confidence Amidst Declining Exchange Supply
Ethereum’s price has seen a rollercoaster ride recently, experiencing an 18% drop to $2,826 between July 1 and July 8 before partially recovering. This drop led to the liquidation of $313 million in leveraged long positions, causing disappointment among investors. However, the current price of $3,100, still below the previous $3,400 support level, signals a potential turnaround as traders regain confidence, backed by promising onchain and derivatives metrics.
Ether Supply on Exchanges Continues to Decline
Despite potential delays in launching the spot Ethereum exchange-traded fund (ETF) in the United States, Ethereum’s strong fundamentals hint at a likely price rebound soon. Gary Gensler, Chair of the US Securities and Exchange Commission, has hinted that approvals for S-1 filings might come “sometime in the summer,” possibly before the end of September. However, the timeline remains uncertain, leaving traders cautious.
In the past three days, ETFs have witnessed $654 million in inflows. Matt Hougan, Chief Investment Officer at Bitwise, suggested that spot Ethereum ETFs could attract up to $15 billion in inflows within the first 18 months of trading. The price is also poised to benefit from the portion of Ether supply locked in staking and decentralized applications (DApps).
Onchain analyst Leon Waidmann notes that 40% of Ether’s supply is locked, accounting for staking and DApps, while the supply on exchanges has decreased over the past month. According to Glassnode data, deposits on exchanges have dropped to 12.21 million ETH from 13.34 million ETH two months earlier. This reduced availability for immediate trading suggests that investors are less likely to sell in the short term.
The Ethereum network’s total value locked (TVL), which measures the total deposits in its DApp ecosystem, including layer-2 bridges, remains steady at 17.7 million ETH, unchanged from a month ago. This data indicates reduced liquidity on fiat exchanges and shows resilience, considering that Ethereum’s average transaction fees exceed $2, significantly higher than many competitors like Solana (SOL) and BNB Chain (BNB).
Ethereum Layer-2 Activity Growth and Resilient Derivatives Markets
Ethereum’s layer-2 solutions, offering lower fees, have seen significant growth in activity over the past month. In the last 30 days, Ethereum DApps recorded a volume of $200.9 billion. The layer-2 ecosystem expanded significantly, with Arbitrum’s volumes surging to $52.4 billion, a 94% increase. Other layer-2 solutions, such as Blast and Base, also saw substantial growth, in contrast to a decline in volumes for competitors like BNB Chain and Solana.
Even when ETH hit its lowest levels in nearly three months on July 8, Ether derivatives showed minimal enthusiasm from bears. The demand for call (buy) options was twice that of put (sell) options, indicating a lack of interest in neutral-to-bearish strategies. This indicator quickly reverted to its 7-day average near 0.55, favoring call options volumes by 85%.
Both derivatives and onchain metrics support the bullish momentum, and the reduction in ETH available for trading on fiat exchanges suggests a potential short-term price rise above the $3,400 resistance level. Investors should keep a close eye on these data points as Ethereum gears up for a possible rally.
