Ethereum, the second-largest cryptocurrency by market capitalization, has undergone notable shifts recently; particularly in terms of Tier 1 network (L1) revenue and trading reserves. These developments provide insights into the current Ethereum market dynamics and its potential future trajectory.
In March 2024, Ethereum Tier One network fees peaked at $35.5 million. However, by September 2024, daily revenue had fallen to around $578,000 – a staggering 99% drop.
While this upgrade enhanced scalability and affordability, it also led to Reduced fee revenue.
Ethereum trading reserves have also fallen to all-time lows. There are now only 18.3 million Ethereum tokens stored on centralized exchanges. Such a drop usually means investors withdrawing their money from trading platforms, which could be a sign of growing confidence in the long-term value of Ethereum and their desire for self-preservation rather than spot trading.
Moreover, large investors, known as “whales,” have been actively accumulating Ethereum. In the past 72 hours alone, entities with between one million and ten million Ethereums have acquired more than 120,000 Ethereum tokens. This accumulation suggests that influential market participants expect a positive price movement, reinforcing the bullish sentiment surrounding Ethereum.
The combination of declining trading platform reserves and increased whale activity could lead to a “supply shock”, as the lack of availability of Ethereum in trading platforms increases demand, and therefore its price. As of this writing, Ethereum is trading at $2,092.86, reflecting a 3.92% increase over the past 24 hours.
Strong Bitcoin Funds Flows and Ethereum Stagnation
Bitcoin exchange-traded funds in the United States recorded a remarkable net inflow of $744.35 million during the week ended March 21, marking the highest inflow seen in the past eight weeks. This development not only halted a five-week period of net outflows, but also extended the chain of inflows for six consecutive days, illustrating a shift in market sentiment towards Bitcoin.
This rise in inflows can be attributed mainly to major funds such as BlackRock’s iShares Bitcoin Trust (IBIT), which alone contributed $537.5 million, followed by Fidelity’s Wise Origin Bitcoin Fund (FBTC) with $136.5 million.
These flows come amid an atmosphere of anxiety surrounding economic conditions, including trade tensions and growing recession fears. Despite downward trends affecting both the cryptocurrency market and the economy in general, the recovery witnessed by bitcoin ETFs is noticeable.
In previous weeks, Bitcoin Traded Funds (ETFs) had amassed investment flows of more than $1.96 billion, with the cryptocurrency reaching an all-time high of $109,000 on January 20, coinciding with the inauguration of US President Donald Trump.
While Bitcoin funds are showing a rebound, the same is not true for Ethereum (ETH) funds, which have continued their weekly net outflow series for four consecutive weeks. The week ending March 21 saw net outflows of Ethereum funds of approximately $102.89 million, and the iShares Ethereum Trust ETF (ETHA) BlackRock’s affiliate is responsible for approximately US$74 million of this total. The drop comes amid volatile Ethereum, trading at $2,090, rising from an alarming drop below $2,000 – a level not surpassed in over a year.
Ethereum Momentum Rises as Trading Reserves Decline
This rally partly stems from a gradual recovery in the public market, and two key indicators on the chain suggest that Ethereum’s momentum may strengthen further.
The series data reveals that Ethereum’s reserves in trading platforms have fallen to their lowest level this year. As of this writing, that metric stood at 18.32 million Ethereum, down a sharp 7% from its annual peak of 19.74 million coins reached on February 2.
An asset trading reserve measures the total amount of currencies or tokens in the portfolios of trading platforms, representing the offer available for spot trading. When this reserve decreases, traders move their holdings from trading platforms to long-term storage, caching, or Ethereum spot ETFs, reducing the available supply of the asset.
This means that a lower Ethereum supply can create upward pressure on prices, as low selling liquidity and stable demand tend to push its price higher.
Moreover, the estimated leverage ratio for Ethereum (ELR) has increased, suggesting that traders are increasingly using leverage to boost their bets on future coin price gains.
ELR reached its year-to-date high of 0.686 on March 21 before seeing a slight decline. As of this writing, the ELR ratio to Ethereum stands at 0.683.
The ELR ratio measures the average amount of leverage traders use to execute trades on cryptocurrency exchanges. It is calculated by dividing the open interest of the asset by the platform reserve for that currency.
The high ELR ratio of Ethereum indicates that traders have increased risk appetite despite its price problems since the beginning of the year. This trend suggests that many coin holders remain optimistic about the near-term rally, and are ready to leverage their positions to consolidate potential gains.
