Ethereum Price at Two-Week Low as $4B Supply Overhang Looms

Ethereum faces mounting macroeconomic uncertainty ahead of a major staking supply unlock that could add additional headwinds to an already fragile crypto market.

The second-largest cryptocurrency by market capitalization has shed 4.5% from its Tuesday high of $4,350 to $4,150, marking a near two-week low, CoinGecko data shows.

The move aligns with Bitcoin’s recent correction to $112,000.

Ethereum ETFs also noted two consecutive outflows late last week and on Monday, following two weeks of significant inflows, suggesting a slowdown in investor interest ahead of the Federal Reserve’s Jackson Hole meeting on Friday and a staking supply exit.

The current exit queue on the Ethereum’s Proof-Of-Stake network stands at 910,461 ETH, worth about $3.91 billion, indicating stakers are looking to unstake their tokens. 

Data from the Validator Queue shows a 15-day waiting period for this supply to take effect.

“The record-high exit queue is primarily driven by profit-taking, as many participants are looking to lock in gains with Ethereum trading near its 2021 all-time high of around $4,900,” Xu Han, Liquid Fund partner at HashKey Capital, told Decrypt.

While profit-taking remains a “dominant motive,”  Han explained that “the recent spike in Ethereum borrowing rates on Aave has made the previously popular leveraged staking trade less viable.”

Leverage staking trade involves borrowing Ethereum to stake via a Liquid staking token. 

The recent uptick in borrowing rates has forced “traders to unwind positions and repay loans by unstaking,” Han said.

Compared to the exit supply of $3.91 billion, the demand for new Ethereum staking stands at 258,951 ETH or roughly $1.09 billion, well below exit demand.

The exit queue “prevents a mass validator exodus,” Ethereum developer Preston Van Loon tweeted Saturday, “without it, validators could rush to exit during a detected or anticipated attack on Ethereum's consensus, weakening the network's economic security when it's most needed.”

Regardless, once unstaked, the supply will likely flood into the open market.

De-risking

Investors have “de-risked before Friday's Jackson Hole,” Jake Ostrovskis, Wintermute’s OTC trader, wrote in an X post earlier this week. It comes after a worrying set of economic data releases last week, including Thursday’s Producer Price Index.

U.S. Federal Reserve Chairman Jerome Powell is likely to provide clarity on the highly anticipated September rate cut decision. 

Analysts are expecting “a hawkish speech, which is leading to de-risking with a 'known unknown' in the calendar,” Ostrovskis added.

Multiplying the $4 billion unstaking headwind and macroeconomic uncertainty is the worsening network conditions. 

Ethereum active addresses interacting with the blockchain fell to nearly 600,000 from a July 30 high of 841,000, representing a 28% decline. 

Network Growth, a metric that tracks new addresses joining Ethereum, has also dropped 28% to 138,000 in the same period, suggesting a lack of adoption.

The base case for Ethereum involves a potential consolidation between “$3,900-$4,400” as investors await clarity on ”Fed policy’s changes and tech stocks' performance,” Arthur Azizov, Founder and Investor at B2 Ventures, wrote in an email to Decrypt.

Despite the $4 billion staking unlock, HashKey’s Han believes that the market’s capacity to absorb the supply shock is “strong,” driven by “robust inflows from institutional ETFs and digital asset treasuries.”

Experts who previously spoke to Decrypt acknowledged this short-term uncertainty and continue to remain bullish in the long run, expecting Ethereum to reach $6,000 to $8,000 by the end of the year.