Ethereum, the world’s second-largest cryptocurrency by market capitalization, has recently experienced a turbulent period. The price of Ether (ETH) dropped by 18% between July 1 and July 8, falling to $2,826. This decline was accompanied by the liquidation of $313 million in leveraged long positions, leaving many investors disheartened. However, as of now, the price has partially recovered to around $3,100. Despite the recent drop, there are compelling signs that Ethereum is on the verge of breaking through the $3,400 resistance level. In this article, we will explore three key metrics that suggest a potential price rally for Ethereum and what investors should consider moving forward.

1. Declining ETH Supply on Exchanges Signals Bullish Momentum

One of the most significant indicators of Ethereum’s future price movements is the declining amount of ETH available on exchanges. Data from Glassnode reveals that the total ETH deposits on exchanges have dropped from 13.34 million ETH two months ago to 12.21 million ETH recently. This 8.5% reduction in available ETH for trading suggests that investors are increasingly moving their assets off exchanges and into more secure or productive venues such as staking or decentralized applications (DApps).

When the supply of a cryptocurrency on exchanges decreases, it generally indicates that investors are less inclined to sell their holdings. This behavior is often a bullish sign, as it reflects growing confidence in the asset’s long-term prospects. In Ethereum’s case, this trend aligns with the broader expectations for a price rally, as a lower supply on exchanges reduces the chances of a sudden price drop.

2. Growing Ethereum Staking and DeFi Ecosystem

Another strong indicator of Ethereum’s potential for a price increase is the continued growth of its staking program and decentralized finance (DeFi) ecosystem. Currently, about 40% of Ethereum’s total supply is locked up in staking and DApps, according to on-chain analyst Leon Waidmann. This significant portion of ETH being used for network security and various DeFi applications highlights Ethereum’s increasing utility and resilience.

Staking ETH involves locking up funds to help validate transactions on the Ethereum 2.0 network, which rewards participants with additional ETH. This process not only contributes to network security but also reduces the amount of ETH available for trading, which can drive up the price.

Furthermore, the total value locked (TVL) in Ethereum’s DeFi ecosystem remains robust at 17.7 million ETH. This stability in TVL, despite fluctuations in the cryptocurrency market, signifies strong investor interest in Ethereum-based DeFi projects. As Ethereum’s DeFi ecosystem continues to expand, it is likely to support the price of ETH by increasing demand and reducing supply.

3. Ethereum’s Layer-2 Solutions and Derivatives Markets Show Positive Trends

Ethereum’s Layer-2 solutions and derivatives markets also offer promising signs for a potential price rally. Over the past month, Ethereum’s Layer-2 solutions, which are designed to reduce transaction costs and increase scalability, have seen impressive growth.

Arbitrum, one of Ethereum’s prominent Layer-2 solutions, recorded a 94% increase in trading volume, reaching $52.4 billion. Blast, another Layer-2 platform, saw a 62% growth in volume, while Base experienced a 57% increase. These significant upticks in Layer-2 activity suggest that Ethereum’s infrastructure improvements are attracting more users and projects, which bodes well for ETH’s future price performance.

Additionally, the derivatives market for Ethereum shows a strong preference for bullish positions. Data from Deribit indicates that the demand for call (buy) options is currently twice as high as the demand for put (sell) options. This imbalance reflects a general market sentiment that is optimistic about Ethereum’s price moving higher in the near term.

Ethereum’s Technical Analysis: What the Charts Reveal

In addition to these key metrics, Ethereum’s technical analysis provides further evidence supporting the potential for a price rally above $3,400.

Resistance and Support Levels

Ethereum’s price chart shows that while the current price of $3,100 is still below the previous support level of $3,400, there are signs that the cryptocurrency could break through this resistance. Historically, Ethereum has demonstrated the ability to recover from dips and build new support levels as it climbs higher.

Recent price action indicates that Ethereum may be forming a consolidation pattern, which often precedes a breakout. If ETH can maintain its current momentum and continue to build strength, it is well-positioned to surpass the $3,400 resistance and potentially reach new highs.

Bullish Indicators

Several bullish indicators are present on Ethereum’s price chart. The moving averages, for instance, show that ETH is currently trading above its 50-day and 200-day moving averages, which is often a positive sign. Additionally, the Relative Strength Index (RSI) and other momentum indicators suggest that Ethereum is poised for a price increase as they approach overbought conditions, which can indicate future upward movements.

The Potential Impact of a Spot Ethereum ETF

While the start of a spot Ethereum ETF in the United States is still pending, the prospect of such a financial product is generating significant excitement in the market. Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC), has hinted that approvals for S-1 filings might come “sometime in the summer,” potentially by the end of September.

The anticipation of a spot Ethereum ETF is fueled by the success of similar Bitcoin ETFs, which have seen substantial inflows. If the Ethereum ETF achieves similar success, it could attract significant investment into Ethereum, further supporting its price.

What Investors Should Watch For

As Ethereum approaches the $3,400 mark, investors should keep an eye on several key factors that could influence the price in the short term:

1. Exchange Deposits: Continued decreases in the amount of ETH on exchanges could indicate ongoing bullish sentiment among investors.
2. Staking and DeFi Growth: Monitoring the growth of Ethereum’s staking program and DeFi ecosystem will provide insights into the cryptocurrency’s long-term potential.
3. Layer-2 Solutions: Watch for further developments in Ethereum’s Layer-2 solutions and the impact of these advancements on network activity and fees.
4. Derivatives Market Trends: Pay attention to changes in the derivatives market, particularly the balance between call and put options, as this can signal shifts in market sentiment.
5. ETF Approval News: Keep an eye on any updates related to the approval of a spot Ethereum ETF, as this could drive significant market movements.

Conclusion

Recent price data and market trends suggest that Ethereum is well-positioned for a potential rally above the $3,400 level. The decline in ETH supply on exchanges, the growth of Ethereum’s staking and DeFi ecosystems, and the positive developments in Ethereum’s Layer-2 solutions and derivatives markets all point to a favorable environment for Ethereum’s price to increase.

As investors prepare for the possibility of a breakout, it is important to consider these factors and stay informed about market developments. Ethereum’s strong fundamentals and technical indicators offer a promising outlook for the cryptocurrency’s future performance.