Key Ethereum takeaways
- ETH soared from around $2,500 to more than $3,300 in August.
- The supply squeeze phenomenon in the Ethereum market is waking up.
YEREVAN (CoinChapter.com) — Lyn Alden, the well-known investment strategist, has predicted that Ethereum (ETH) will hit $5,000 next year.
Alden said it’s hard to say where ETH tokens are trading. However, she believes a constantly declining active supply caused by Ethereum’s recent network upgrade attempts is “tactically bullish” and will push ETH/USD to over $5,000.
“I think we’re still in kind of the early-to-mid stage of its long-term trajectory,” Alden told Insider in a recent interview.
“So that remains, I think, the best risk-reward sort of allocation to define and forget.”she adeed.
Ethereum is shifting to “Ethereum 2.0,” a proof-of-stake protocol that replaces miners with validators. So instead of employing a network of expensive and carbon-emitting machines to run the Ethereum network, users merely deposit a certain amount of Ether in a smart contract to do the same task.
As a result, ETH tokens get locked out of active supply.
ETH 2.0 locked assets and supply squeeze
The number of ETH in the Ethereum 2.0 smart contract has surged dramatically since December 2020. According to Blockchain analytics firm CryptoQuant, more than 7 million ETH, which means over 6% of the ETH total supply stands committed to ETH 2.0, unavailable to sell and purchase.
Ethereum invites participants to stake 32 ETH to become a validator. Also, the participant who wants to bet less than that can add their asset to staking pools.
After sending ETH to the staking deposit contract, the participant won’t withdraw the fund until its Mainnet merges with the Beacon Chain. This merge will make Ethereum become a completely proof-of-stake network.
Meanwhile, Ethereum’s London hard fork took place on August 5, 2021. The software update implemented a set of Ethereum improvement protocols, one of them EIP-1559. EIP-1559 enabled gas fee burning on the Ethereum network.
Since the hard fork, around 4 to 5 ETH are burned per minute. Every year, EIP-1559 could remove approximately 3 million Ethereum tokens will be removed from the market, which increases ETH scarcity. Up until now, more than 100,000 ETH ($310,691,862) have been burned, and this number is still rising.
With Ethereum protocol burning the base fee in every mined block, the amount of ETH in circulation becomes less and less, so its value will rise due to supply shock.
The other factor to look at is the number of Ether deposits across all the cryptocurrency exchanges. Unfortunately, this amount is dipping considerably.
According to CryptoQuant data, there is less than 19 million ETH across all the trading platforms at the press time. This amount is over 17% less than the beginning of 2021, which suggests that trader’s preference to hold their assets instead of trading them is increasing.
The chart above shows the correlation between the Ether price and its reserves on exchanges. The more the exchanges’ ETH balances decline, the higher the ETH/USD appears bullish.
ETH deposit plunge
Another on-chain indicator is the total amount of ETH tokens that have been transferred to all different exchanges. It shows that inflow has weakened during the past nine months as deposits fell from more than 440,000 in January to 290,980 at the press time, which means a 34.11% decrease.
And during the last 30 days, with the upcoming Ethereum 2.0, the ETH deposits have dropped by 54.44%, signaling investors have decided to hold their assets instead.
The number of unique ETH wallet addresses has passed 166 million, according to Etherscan. Also, wallets holding more than $1,000 worth of ETH have jumped 26% in the last 30 days.
DApps, Decentralized finance (DeFi), and non-fungible tokens (NTF) are making Ethereum a day-to-day usable network. In the past month, the total value locked up in DeFi transactions has grown from 64$ billion to $82 billion, according to Defipulse.com data.
With a growing demand for Ether and ETH 2.0 burning plans, many professionals like Alden believe in the Ethereum eye-catching price surge.