How is Ethereum’s recent situation under the dual expectations of futures ETF and the Cancun upgrade?

What is the current status of Ethereum amid the expectations of futures ETF and the Cancun upgrade?

Author: Ebunker

The upcoming upgrade of 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.

ETH daily burn hits a new low for the year

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 the fee that users must pay and will be burned instead of going to miners, while the miner tip is a dynamic fee used to incentivize miners to prioritize users’ transactions during congestion.

According to data from The Block, on August 18, 2023, the daily burn of ETH was 946.63 ETH, hitting a new low for the year and a relatively low level since the implementation of EIP-1559 two years ago.

The decrease in ETH burn recently indicates a weakening of Ethereum L1 activity. This is because market participants have shifted their attention to more scalable L2 solutions. The activities on Base and the diversion to L2 solutions like Optimism are important reasons for the decrease in ETH burn. In addition, projects in the development stage such as zkSync and StarkNet indirectly contribute to the decrease 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 crossed over 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 data from L2 Beat, Base currently processes an average of 5 transactions per second, without congestion, far from reaching its peak. This data is comparable to Optimism and is second only to Zksync ERA and Arbitrum One in L2.

The other two L2 solutions that have diverted from the Ethereum mainnet recently include 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 in the development stage have attracted attention because they may incentivize early users through airdrops when they are officially launched. Therefore, both Zksync and Starknet’s testnets have seen a surge in active users.

The rise of Layer 2 may reduce the amount of ETH burned in the short term, but in the medium and long term, it is particularly important for the scalability and support of the ETH ecosystem, especially after the execution of EIP-4844. The cost of Layer 2 will be greatly reduced, allowing 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 number of ETH staked reached 23.72 million, equivalent to about 19.44% of the total circulation.

Since the Shanghai upgrade (open staking withdrawal), the net increase in the number of ETH staked has reached 6.28 million, which indicates that the Shanghai upgrade has eliminated doubts for investors staking ETH.

According to 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 after the recent decline in the cryptocurrency market, the daily withdrawal of ETH continues to decrease.

Ethereum development progress

On August 17th, Ethereum developers held a meeting on this topic and announced that the new testnet Holesky will be launched next month. Holesky may provide more than 1 billion testnet ETH, making it easier for developers to access the test network and operate according to test goals.

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

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 unclear which funds will be approved immediately. According to informed sources, several ETFs may be listed before October. Previously, nearly 12 companies, including Volatility Shares, Bitwise, Roundhill, and ProShares, had 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 12th, becoming the first of its kind in the United States. Since submitting the documents in July, the SEC has not asked asset management companies to withdraw their applications, indicating the possibility of launching such funds in the fall.

ETH Whales Reducing Holdings

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

Currently, on-chain data indicates that Ethereum whales have not made any buying moves in anticipation of an Ethereum futures ETF. Despite some price rebounds after the strong sell-off on August 18th, whales as a whole continue to reduce their holdings. From July 14th to August 18th, whale ETH holdings decreased by 4%, while the price of ETH also dropped by 18%.

Currently, ETH’s RSI indicator has dropped below 30, indicating a technical oversold stage, which strategic investors may consider as a reference for starting to buy.

For example, after the market decline, three addresses labeled as “smart whales” (with a history of buying low and selling high during previous ETH trading cycles) made buying moves. One address, after a 5-month dormancy, woke up and spent $1.52 million to buy 907.4 ETH at a price of $1,680.

Another address starting with 0xee spent $11.15 million to purchase 5,120 WETH and 1,506 ETH at a price of $1,683. Prior to 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 0x828 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 last two ETH trading cycles. Currently, the address holds a total of 22,601 ETH, worth $37.8 million.

Some speculate that these whales may be waiting for the SEC’s formal approval of Ethereum futures ETF.

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