Ethereum on the Rise: ETH's Surge and Anticipated Dencun Upgrade Excites Investors
Summary:
Ether (ETH) has surged over 27%, mirroring Bitcoin's rise and reaching near $2,800 between Jan 24 and Feb 14. This increase is attributed to the anticipated Dencun upgrade to the Ethereum network, impending approval of the ETH exchange-traded fund (ETF), and shrinking Ether supply due to staking. The U.S. Securities and Exchange Commission (SEC) is slated to decide on several Ethereum ETF applications by May 23. Also, notable is Ethereum's upcoming Dencun upgrade set to improve the main network's performance, security, and efficiency. Plus, increased staking and burning rates, coupled with decreased issuance and the potential for spot Ethereum ETFs, could change ETH's supply-demand dynamics, attracting new investors.
Ether (ETH) has experienced a surge of over 27% between January 24 and February 14, touching close to $2,800. This surge echoes the performance of Bitcoin (BTC), which surpassed $52,000 for the first time in over two years on February 14. The rising trend for Ether is attributable to the impending upgrade of the Ethereum network, known as Dencun, the anticipation over approval of an ETH exchange-traded fund (ETF), and the dwindling supply of Ether on exchanges because of staking.
The U.S. Securities and Exchange Commission's (SEC) sanction of spot Bitcoin ETFs on January 11 kindled hopes of a similar approval for ETH ETFs. Several spot Ethereum ETF applications are currently before the SEC, with a decision expected by May 23, a statutory deadline. Previous decisions on Grayscale's request to transform its Ethereum trust product (ETHE) into an ETF and an application by BlackRock for an Ethereum ETF were postponed by the SEC.
Recent updates include amendments to 21Shares and Ark Invest's Ethereum ETF filings. Franklin Templeton, an asset management firm with $1.5 billion in assets under management, is the latest to join the race, filing an S-1 application with the SEC on February 12.
Based on trends observed with the Bitcoin ETFs, ETH ETF approval by the SEC could trigger significant capital input from institutional investors.
As part of an upcoming enhancement to the Ethereum blockchain, known as the Dencun upgrade, on March 13, the security, performance, and efficiency of the Ethereum mainnet are expected to improve. This upgrade will feature "proto-danksharding," aimed at decreasing transaction costs on Ethereum layer 2 scaling networks (rollups) by providing dedicated data storage spaces or "blobs."
Moreover, these upgrades are poised to reduce data availability costs of the Ethereum mainnet, making projects like Celestia, EigenDA, and Avail more appealing to users—a part of the Ethereum roadmap disclosed by Ethereum co-founder Vitalik Buterin in January. Ethereum core developers are already engaged in the next upgrade, Prague and Electra, as well as "Verkle Trees," a novel data structure designed to facilitate the storage of large amounts of data while ensuring block validation capabilities.
Current data from Dune Analytics indicate that 25.5% of the total Ether supply is staked. This significant development implies that these staked Ether tokens are temporarily out of circulation, which cuts down the potential selling pressure on ETH.
In terms of assessing the selling pressure of an asset, a valuable metric is the supply balance on exchanges. According to Glassnode, the supply of ETH has decreased, with the exchange balance hitting a seven-year low, thereby indicating a potential Ether shortage. Notably, the past year has seen the burning of 984,000 ETH on average per year, effectively reducing the total Ether in circulation by 0.21%. This compares to an annual circulation entry of 732,000 ETH.
Predictably, the increased staking, higher burn rates, and reduced issuance, along with a potential spot Ethereum ETF, could dramatically change the supply and demand configuration for ETH, making it accessible to a new investor pool, and possibly driving up trading interest.
Please note that this article does not contain investment advice or recommendation. Any investment or trading move bears risks, and readers are advised to undertake their own research before committing to a decision.
Published At
2/15/2024 2:09:23 AM
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