Ethereum Supply Tightens as Staking and ETF Demand Reduce Liquid Float

Ethereum's supply structure has changed in recent months, with more than 42 million ETH locked in staking and exchange balances falling by 15% since early June. This reduction in liquid float has led to a tightening of the market, making it harder for buyers to absorb large amounts of ether.

The price of ETH touched a seven-day high of $2,545.88 on August 21 but failed to break through this level repeatedly. Despite institutional buying through spot funds, existing holders have been taking profits, meeting the demand with sales. The scale of the move from $1,867 in early August to $2,546 is significant, with a gain of roughly 36.4% in just twenty-five days.

Historically, Ethereum has underperformed Bitcoin on the way up and down, but this trend flipped between August 19 and 21, when ETH rallied nearly 20% while Bitcoin gained about 7%. This outperformance is significant, especially since it was driven by a $2.9 billion short squeeze and spot ETF inflows of $697 million in the week ending August 21.

The cross rate between ETH and BTC has also moved significantly, from a 10-month low near 0.024 to 0.027 in May to around 0.033 recently. While this represents a 25% to 37% recovery, some analysts believe that the ratio should mean-revert further due to Ethereum's issuance and fee dynamics.