The value of Ethereum, which is a decentralized smart-contract token, has seen a daily loss of 5.8 percent and is now following the price movement of Bitcoin. Earlier in the week, the price of ETH had a jump of 7%, which prompted some investors to immediately cash out their profits. At the time this article was written, the price of one Ether was $1,196.
Before the bears took control of the market, the price of ether reached a high of $1,349. Recently, there was a correction to the downside that occurred below the level of $1,320. The price fell to a level that is below the 23.6% Fib retracement level of the most recent wave that started at the swing low of $1,240 and reached a high of $1,349.
CryptoQuant Speaks on Ethereum
The well-known on-chain analytics provider CryptoQuant recently shared some new insights on the second biggest cryptocurrency. According to CryptoQuant’s analysis, there might be a possible sell-off of Ethereum for two primary reasons.
The first reason is a sudden increase in the amount of money being deposited into the Ethereum 2.0 deposit contract. These monies will remain frozen until the Shanghai hard fork is completed.
Next, as the analyst highlighted, thus far, the total amount of locked ETH in the contract amounts to around 12% of the entire supply of Ethereum.
CryptoQuant said:
“From a short-term perspective, there are higher APY strategies than staking rewards by depositing ETH2 that might not be promised to withdraw.”
In addition, the data reveals that the number of depositors has been steadily declining to below-average levels. According to data that was disclosed previously by Ethereum, the latter is scheduled to take place less than a year after the Merge event, which took place in the middle of September, which is to say in March 2023.
The analyst added:
“The supply and demand dynamics will shift after the fork, $ETH price volatility is imminent. Will Shanghai trigger mass-selling? Or is it an opportunity that provides more liquidity to buy more ETH?”
The next reason has to do with the deposits and balance of ETH 2.0. CryptoQuant observed that there was a 57% decline in the number of deposits in 2022 as compared to year 2021. However, the total amount that was deposited is comparable to that of the previous year. In other words, there was a 133% rise in the total sum per deposit in 2022.
The expert then moves on to discuss Ether’s exchange reserve as the next potential reason. It’s possible that when the ETH exchange reserve drops, the ETH 2.0 balance will rise. Around 18 million ETH, or 15% of the entire supply, are now held on exchanges. However, there is a persistent decline in Ether’s exchange reserve.
Last but not least, there’s the diminishing supply of Ethereum, which began following The Merge. After the fork, the equilibrium between supply and demand will have shifted, causing ETH prices to fluctuate. To that, CryptoQuant pondered whether or not the Shanghai Hard Fork will trigger mass-selling, or be an opportunity that provides more liquidity to buy more Ether.
The Community Reacts
That concludes CryptoQuant’s analysis. You’ve undoubtedly guessed correctly that this has caused division among the crypto community. Not everyone is on board with his viewpoint.
Someone said that there is currently no confidence that withdrawals will be authorized by March of next year, and precedent shows that a currency with Ethereum’s characteristics cannot withstand such intense selling pressure. Another person said that at the current price of $1000, Ether is “not worth it right now.”
If Ethereum fails, it might cause even more problems for the sector. I hope that never comes to pass. We can only pray that the analysis is correct.