ETF and Staking Tighten Supply Together – Is ETH Brewing a New Rally?

Original title: Ethereum Supply Tightens as Staking and ETF Demand Reduce Liquid Float

Original author: Itai Smidt, Investing.com

Editor's note: In late August, ETH staged a rare strong rally for the year. From August 19 to 21, ETH rose from around $1,916 to an intraday high of $2,546, significantly outperforming BTC over the same period. Prices did not quickly give back gains afterward, instead consolidating near $2,500, while the ETH/BTC ratio also recovered notably from its mid-year low.

The rally was initially ignited by improved risk appetite and short squeezes, but the article truly focuses on the supply-demand shifts behind the move: US spot Ethereum ETFs saw nearly $700 million in weekly net inflows, approximately 42 million ETH is staked, exchange balances have fallen about 15% since early June, and corporate treasuries continue to accumulate. These forces are combining to compress the amount of ETH available for immediate sale.

Author Itai Smidt argues that ETH's liquid float has tightened notably since June, meaning new capital entering a thinner market could produce greater price elasticity. However, declining supply does not guarantee higher prices—this rally also includes substantial short covering and leveraged capital, and the sustainability of ETF inflows has yet to be fully validated.

Therefore, what the market needs to confirm next is not just whether ETH can break above $2,550, but also whether institutional capital can sustain inflows, whether ETH/BTC can hold its recovery gains, and whether staking and corporate holdings continue to absorb new supply. These variables will determine whether this rally is a rapid short squeeze or the beginning of a repricing of ETH relative value.

The following is a translation of the original article:

In August, ETH finally broke free from its relative weakness that had persisted for most of the year.

From August 1 to 21, ETH rose from approximately $1,867 to a high of $2,545.88, a cumulative gain of about 36%. Most of these gains were concentrated between August 19 and 21: ETH surged nearly 20% in three days, while BTC rose about 7% over the same period—marking the first time since 2026 that ETH significantly outperformed BTC during a major rally.

The market then entered high-level consolidation. ETH made multiple attempts to break above $2,500–$2,550 but met selling pressure each time. As of the time of writing, prices remain near $2,450, less than 4% below the local high. This suggests significant profit-taking pressure above $2,500, though the market has not yet fallen back sharply into its pre-rally range.

The author believes the key to this rally is not just the price increase. ETF inflows, rising staking participation, declining exchange balances, and corporate treasury accumulation are all happening simultaneously, further reducing tradable supply compared to mid-year.

In this structure, even limited new capital inflows could produce outsized price impact. But this thesis still needs to be validated by continued fund flows and price action.

Short Squeeze Ignites the Rally, but Is Not Enough to Confirm a Trend Reversal

In the first seven months of this year, ETH consistently underperformed BTC. By mid-year, ETH was down approximately 32% year-to-date, while BTC was down about 11%—a relative performance gap of more than 20 percentage points.

This prolonged underperformance led to significant ETH short positions accumulating in the market. According to the article, the mid-August rally was amplified by a short squeeze involving approximately $2.9 billion in positions; between August 23 and 24, another $60.61 million in ETH shorts were liquidated.

Mechanically, a short squeeze occurs when rising prices force short sellers to cover, and those buybacks further push prices higher. It can create dramatic rallies in the short term but cannot independently prove that fundamentals or long-term trends have changed.

One relatively positive aspect of this rally is that ETH did not immediately give back most of its gains after the sharp advance. BTC and ETH have retreated from their local highs by similar percentages, meaning ETH's earlier relative outperformance has been temporarily preserved.

The ETH/BTC ratio has also recovered from a June low of around 0.025 to approximately 0.033, a cumulative rebound of about 32%. This shift suggests the market is beginning to reprice ETH's valuation recovery relative to BTC, though the current ratio remains well below the highs of the previous cycle.

The author views 0.033 as a key observation level. If ETH/BTC can break and hold above this level, the capital rotation thesis could gain strength; if it falls back below 0.030, it would suggest that this relative strength may still be driven primarily by short covering.

ETF Weekly Inflows Near $700 Million as Institutional Demand Recovers

ETFs represent the most easily quantifiable component of new demand for ETH in this cycle.

In the week ending August 21, US spot Ethereum ETFs recorded approximately $697 million in total net inflows, the highest weekly level since 2026; August 21 alone saw net inflows of about $185 million. During the same period, Bitcoin spot ETFs recorded net inflows of approximately $1.918 billion, with the two products together absorbing roughly $2.62 billion.

Looking at daily data, Ethereum ETFs saw net inflows for five consecutive trading days from August 17 to 21, at approximately $30.85 million, $71.47 million, $189 million, $221 million, and $185 million respectively—indicating that capital did not arrive in a single concentrated session.

The author concludes that institutional demand has recovered. However, the simultaneous occurrence of ETF inflows and ETH price gains only demonstrates a strong correlation; it is not yet sufficient to attribute the entire rally to ETF buying. Improved risk appetite, short covering, and leveraged position expansion are also amplifying price movements.

The concentration of capital also warrants caution. According to the article, on certain days a single issuer absorbed approximately 78% of Ethereum ETF net inflows. When a few large players dominate demand, it can push prices higher in the short term, but it also means the stability of buying depends on a limited number of allocators.

The next potential catalyst comes from ETF staking. If regulators permit US spot Ethereum ETFs to participate in staking, these products could not only gain ETH price exposure but also share in network staking yields, improving their total return attractiveness relative to BTC ETFs. However, until formally approved, this remains a policy expectation and cannot be counted as confirmed demand.

42 Million ETH Staked, Exchange Balances Down 15%

Compared to the rapidly changing ETF flows, adjustments in ETH's supply structure may carry more long-term significance.

According to data cited in the article, approximately 41.7 to 42 million ETH is currently staked, representing about one-third of total supply. Meanwhile, ETH held on exchanges has declined from approximately 7.7 million in early June to 6.54 million by mid-August, a drop of about 15%—equivalent to 1.16 million ETH leaving trading platforms.

Staking refers to holders committing ETH to Ethereum's proof-of-stake network to participate in validation and earn rewards. Staked ETH is not permanently locked, but withdrawing and selling requires an operational process, and its immediate liquidity is typically lower than assets held on exchanges.

Declining exchange balances don't mean this ETH will never be sold, but they do reduce the amount of supply available for immediate transactions. When ETFs, corporate treasuries, and other large buyers enter simultaneously, thinner trading depth can amplify price movements.

The author suggests this may partially explain the performance gap between ETH and BTC in this rally: approximately $697 million in weekly Ethereum ETF net inflows corresponded to ETH's nearly 20% segment gain, while larger Bitcoin ETF inflows produced relatively limited short-term gains.

However, this comparison cannot rule out differences in leverage, market depth, and short positioning. More accurately, tighter supply may have increased ETH's sensitivity to new demand rather than independently determining its gains.

Following Ethereum's Merge and transition to proof-of-stake, new issuance has fallen significantly below the previous proof-of-work era, reducing long-term dilution pressure. The article concludes that ETH's supply structure is more favorable than before, but rising staking participation still cannot be simply equated with "disappearing supply": a meaningful portion of staked assets may have come from long-term holders with low selling intentions anyway.

By contrast, declining exchange balances more closely reflect holders' active choices and are therefore viewed by the author as a more informative supply indicator.

BitMine Holds Nearly 5% of ETH—Structural Buying Accompanied by Concentration Risk

Corporate treasuries are becoming a new variable in ETH's demand structure.

BitMine disclosed that as of August 24, the company held 5.8476 million ETH, an increase of 32,447 coins from the previous week, with an average cost of approximately $2,440; of this, about 5.0673 million ETH is already staked. Based on the approximately 120.7 million ETH circulating supply cited by the company, its holdings represent roughly 4.8% of the total.

This scale is close to nearly 90% of the exchange ETH balance mentioned in the article. A single company's holdings and purchase pace are already sufficient to influence ETH's marginal supply-demand dynamics.

BitMine has described holding 5% of ETH's total supply as its "Alchemy of 5%" target. Based on the company's disclosed holdings, it is fairly close to this goal. However, corporate plans cannot be directly treated as confirmed buying—future purchases still depend on equity fundraising capacity, company valuation, and market conditions.

Corporate treasuries can provide structural demand that is relatively price-insensitive, but they also increase holding concentration. If the company's financing conditions deteriorate, its stock price comes under pressure, or its treasury strategy shifts, concentrated holdings could convert into potential supply.

Therefore, BitMine's accumulation is positive for ETH's short-term supply-demand balance, but its long-term impact is not unidirectional. The market needs to monitor not only the scale of purchases but also funding sources, staking ratios, and balance sheet capacity.

Whether a New Rally Can Take Hold Depends on Three Key Validations

After the rapid rally, ETH's short-term technical indicators have become notably overheated.

Multiple data points summarized in the article show that ETH's daily Relative Strength Index (RSI) rose to the 75–85 range, above the 70 level typically used to identify overbought conditions. MACD is flattening at elevated levels, indicating prices remain firm but momentum is fading. The market fear & greed index also climbed from 46 on August 19 to 73–74, with sentiment quickly shifting from caution to greed.

The $2,500–$2,550 range is the clearest resistance zone at present. ETH has made multiple attempts to break above this area but has been sold off each time; the more significant support platform below sits near $2,330–$2,360.

Tighter supply gives ETH better price elasticity but does not guarantee a one-way continuation. To determine whether a new trend can take hold, three variables need to be observed:

First, whether ETFs can maintain net inflows. The author views weekly inflows of $300 million as a reference threshold; if capital continues to flow in, the probability of ETH retesting $2,550 could increase. If ETFs quickly turn to net outflows, the sustainability of August buying will be called into question.

Second, whether ETH/BTC can hold above 0.033. If the relative exchange rate continues to strengthen, it would suggest the market may be shifting from a dollar-denominated price rebound to a sustained ETH outperformance versus BTC.

Third, whether prices can break above $2,550 and hold the $2,330–$2,360 support. An upside breakout would reinforce the supply-tightening trading thesis; a break below the consolidation platform would indicate that leverage and short covering may still be the primary drivers of this rally.

ETH's supply structure has indeed tightened further since June, and ETFs and corporate treasuries have brought new demand. But until $2,550 is effectively broken, a "new rally" remains a market judgment awaiting validation.

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