Another Record High for Ethereum as Liquidity Crisis Looms

Yerevan (CoinChapter.com) – Ethereum (ETH) is on a raging rally, trading at an all-time high of $4,259 during the London session Wednesday while subsequently showcasing a proactive imbalance between its supply and demand.

Ki-Young Ju, the chief executive of blockchain analytics firm CryptoQuant, offered a perspective on the sell-side liquidity crisis phenomenon. He stated that the total ETH reserves are declining across both derivative and spot exchange wallets.

Unlike Bitcoin, $ETH holdings have been decreasing in both derivative/spot exchanges, intensifying the sell-side liquidity crunch.

Ethereum ecosystem and its usability are making $ETH leave centralized exchanges.

Chart👉 https://t.co/7WGj7lKXM4 https://t.co/ob58dEKdv9 pic.twitter.com/RpWyXQd39v
— Ki Young Ju 주기영 (@ki_young_ju) May 12, 2021

Bitcoin has lately consolidated lower upon establishing its all-time high, offering traders little upside incentives. That has prompted them to transfer their profits to the altcoin market, especially Ethereum, the second-largest cryptocurrency with a market cap of almost half a trillion dollars.

The CrytoQuant data shows a resilience among traders to realize their Ethereum profits. Instead, they have withdrawn their ETH tokens to their private wallets to have put them to use in yield-returning ventures. That somewhat shows their long-term bullish bias for the cryptocurrency.

Thus, by taking their Ethereum out of exchange wallets, they have unintentionally created a supply shortage against rising demand. Such an imbalance creates a liquidity crisis among exchanges. Meanwhile, the said scarcity tends to drive the ETH/USD exchange rates even higher.

Reasons behind the Ethereum rally

Mr. Ju emphasized institutional investments among the main reasons that fueled the bullish rally, as evidenced by the growing demand for ETH on Coinbase.

The latest major institutional involvement in the Ethereum sector came from the European Investment Bank on April 28. The “lending arm of the EU” issued €100M ($121M) digital notes atop the Ethereum blockchain, validating its ledger’s massive potential in the mainstream financial sector.

Ethereum blockchain is also undergoing changes. It is switching from proof-of-work algorithm to proof-of-stake, which promises to transform the platform altogether.

The demand for Ethereum can be driven partially by the London hard fork – which introduces EIP-1159 – that will overhaul the fee market entirely to make it easier for users to pay fair transaction costs. The network will burn gas fees.
— Jean-Pierre Buntinx for CoinChapter.com

ETH on a bullish rally. Source: ETHUSD on TradingView.com

Mr. Ju showed certainty that the declining holdings in both derivative and spot exchange wallets are indicative of the continuous bullish bias. And though Bitcoin’s bullish trend is still ongoing, in his opinion, Ethereum is currently a more attractive option for traders. As of the moment of writing, the ETH price is at $4,259.