With the dual expectations of futures ETF and the Cancun upgrade, what is the current situation of Ethereum?

What is Ethereum's current situation with futures ETF and the Cancun upgrade?

ETH Daily Burn Amount Hits Yearly Low

Since the London upgrade in August 2021, the Ethereum blockchain has implemented the ETH burning mechanism to optimize transaction fees. EIP-1559 divides the gas fees that users need to pay to miners on Ethereum into two parts: base fee and miner tip. The base fee is a mandatory fee that users have to pay, and it will be burned instead of going to the miners. The miner tip is a dynamic fee used to incentivize miners to prioritize users’ transactions during network congestion.

According to data from The Block, on August 18, 2023, the daily burn amount of ETH reached 946.63 ETH, setting a new low for this year and also a relatively low level after two years of EIP-1559 implementation.

A decrease in ETH burn indicates a weakening of Ethereum L1 activities as when transactions occur on the ETH mainnet, ETH is burned. This is because market participants have shifted their attention to more scalable L2 solutions. The on-chain activities of Layer 1 solutions like Base and the diversion to L2 solutions like Optimism are important reasons for the recent decrease in ETH burn. Additionally, projects in the development stage such as zkSync and StarkNet indirectly contribute to the reduction in ETH burn.

Recently, Coinbase’s Base L2 has been welcomed by the crypto community. Since its launch, over $236 million worth of crypto assets have been bridged to Base, including $144 million worth of ETH.

On August 9, Base launched over 100 Dapps, reaching a level comparable to other mainstream Ethereum L2 networks. According to statistics from Dune Analytics, the number of daily active users on Base exceeded 136,000 on August 10, surpassing Optimism’s 114,700 during the same period.

According to L2 Beat, Base currently handles an average of 5 transactions per second, which is not congested and far from its peak capacity. This data is comparable to Optimism and only surpassed by Zksync ERA and Arbitrum One in L2 solutions.

Recently, two other L2 solutions that have diverted from the Ethereum mainnet are zkSync and StarkNet, both of which are still in the development stage. zkSync uses zero-knowledge technology to make transactions on Ethereum faster and cheaper, while StarkNet is a permissionless decentralized zero-knowledge rollup designed to scale decentralized applications on the Ethereum blockchain. It is reported that these two projects have attracted attention because they may incentivize early users through airdrops upon their official launch. As a result, the testnets of Zksync and Starknet have seen a surge in active users.

The rise of Layer 2 (L2) may temporarily reduce the amount of ETH burned, but in the medium to long term, it is crucial for the scalability and support of the ETH ecosystem, especially after the implementation of EIP-4844. The cost of L2 will be significantly reduced, enabling the Ethereum network to be used on a larger scale.

Changes in ETH Staking Data

From the current staking data, the Shanghai upgrade has had a profound impact on the ETH staking field, one of the most significant indicators being the significant increase in the number of ETH staked. According to Token Terminal’s data, as of August 20th, the amount of ETH staked reached 23.72 million, equivalent to approximately 19.44% of the total circulation.

Since the Shanghai upgrade (open staking withdrawal), the net increase in the amount of ETH staked has reached 6.28 million, indicating that the Shanghai upgrade has alleviated investors’ concerns about staking ETH.

According to the data provided by Token Unlocks, the number of ETH validators has been steadily increasing and has now reached 740,000, with a staking annual yield of 4.97%. It is worth noting that the daily withdrawal amount of ETH continues to decrease after the recent downturn in the crypto market.

Progress in Ethereum Development

On August 17th, Ethereum developers held a meeting on this topic and announced that a new testnet called Holesky will be launched next month. Holesky may provide over 1 billion testnet ETH, making it easier for developers to access the test network and perform operations based on their testing goals.

A testnet is defined as a cloned blockchain where developers can test their applications and smart contracts before deploying them to the mainnet. Ethereum currently has two main test networks: Goerli and Sepolia. However, according to the details determined at the Ethereum developers’ meeting, it is expected that Goerli will soon be replaced by the Holesky testnet. In other words, Holesky will serve as the testnet for Ethereum staking, infrastructure, and protocol development, while Sepolia will continue to serve as the network for Dapp, smart contract, and other EVM function testing.

Expectations for Ethereum Futures ETF

On August 18th, according to Bloomberg, the U.S. Securities and Exchange Commission (SEC) plans to approve the listing of the first Ethereum futures ETF. It is currently not immediately clear which funds will receive approval. According to sources, several ETFs may be listed before October. Previously, nearly 12 companies, including Volatility Shares, Bitwise, Roundhill, and ProShares, have applied to launch Ethereum futures ETFs.

In addition, according to The Wall Street Journal, the SEC may allow multiple Ethereum futures ETFs to be listed simultaneously. Asset management company Volatility Shares plans to launch an Ethereum futures ETF on October 12, becoming the first of its kind in the United States. Since filing the documents in July, the SEC has not requested the asset management company to withdraw the application, indicating the possibility of launching such funds in the autumn.

ETH Whales Selling

As shown in the above figure, since mid-July, Ethereum whales holding 10,000-100,000 ETH have shown significant selling behavior. Between July 14 and August 18, the whale addresses reduced their ETH holdings by 1.12 million.

Currently, on-chain data shows that Ethereum whales have not made any buying actions due to the expectation of Ethereum futures ETF. After the strong sell-off on August 18, although ETH has seen some price rebounds, whales as a whole continue to sell. From July 14 to August 18, whale ETH holdings decreased by 4%, while ETH prices also fell by 18%.

Currently, ETH’s RSI indicator has dropped below 30, which means it has entered the oversold phase from a technical perspective. Strategic investors may take it as a reference indicator for buying opportunities.

For example, after the market decline, three addresses marked as “smart whales” (with a history of buying low and selling high in previous ETH trading cycles) made buying actions. One of the addresses woke up after a dormant period of 5 months and spent $1.52 million to buy 907.4 ETH at a price of $1,680.

Another address starting with 0x ee spent $11.15 million to purchase 5,120 WETH and 1,506 ETH at a price of $1,683. Before this purchase, the address had already invested in 6,676 ETH and 2,747 Steth, and borrowed $8 million from the decentralized lending platform AAVE.

The third address starting with 0x 828 bought 2,600 ETH at an average price of $1,682, totaling $4.38 million. This address has made a profit of $14.17 million in the past two ETH trading cycles. Currently, the address holds a total of 22,601 ETH, worth $37.8 million.

Some comments believe that these whales may be waiting for SEC’s official confirmation and approval of Ethereum futures ETF.

Overall, the upcoming upgrade to Cancun and the Ethereum futures ETF make Ethereum’s current trend slightly better than Bitcoin’s, and may become an important support for Ethereum’s trend.