Ethereum Shortage Analysis on ETH2 Deposit Contracts
Disclaimer: This is in no way financial advice. The content below is for research purposes and opinion only. I am not your financial advisor. Investors, beware.
For Eth 2.0 to be a success, a minimum of 524,000 ETH must be deposited in the ETH2 deposit contract a week before December 1st (November 24). This can cause supply shortages as this ETH will be locked from the circulating supply until ETH Phase 1.5.
At the time of writing, 97,000 Eth has been sent to the contract. This leaves 427,000 ETH worth of buying pressure to meet the quota. At the current market price of 460 USD, that would account for $196,420,000 USD worth of buying pressure assuming that investors will buy ETH off the open market for the sole purpose of depositing Eth into the Eth2 contract. There is probably a small number of investors who are buying ETH in anticipation of this, so this data may not clearly reflect the hypothesis.
However, the buying pressure of $196M USD could cause an increase in the price of Eth by 2 percent assuming all miners would not sell at this period. It is important to note that miners are most likely to sell near the end of the month. If miners do sell in the next 8 days, we can still expect an increase in the price of Eth by 1.6%.
Below, I have the first scenario on the left in where the miners do not sell. The chart on the right is if miners do sell all miner revenue. I used ViewBase.com to track exchange in flows and out flows in which I discovered that Coinbase users have not withdrawn/deposited Eth in 30 days so I excluded their exchange supply from the equation as it is unlikely that Coinbase users would deposit Eth in the Eth2 contract. I aggregated remaining exchanges and added liquidity pools from uniswap.org and sushiswapclassic.org.
ETH2 deposit contract can be tracked here: https://explore.duneanalytics.com/dashboard/eth2-0-deposits
Or on https://etherscan.io/address/0x00000000219ab540356cbb839cbe05303d7705fa
Potential trade opportunities:
The obvious trade here is to go long on ETH. If the Eth2 deposit contract does fill it’s minimum quota by the timeline, it will be a big milestone for the Ethereum Foundation because this is a big step in moving to a POS system from POW. Since this is a big milestone, it is likely that more investors would buy Eth in anticipation of Eth 2.0’s arrival. I am very confident that the Eth2 deposit contract will get its minimum quota regardless of market conditions, but in the event it does not, Ethereum’s price can fall quite a bit.
A shortage of Eth supply on exchanges could mean negative lending rates (this means that shorters of Eth will pay that of the longs). One can capitalize on this buy going long with 1x leverage (essentially buying spot) and getting a return on interest from those who are shorting Eth. A similar situation occurred during the Bitcoin Cash Hardfork on November 15th. Funding rates were -4.2% per day on some exchanges.
Technical Analysis:
It is likely we will break yearly highs leading to November 24th. However, with bearish divergence on the 4h, it is likely that we will see a slight pullback and consolidation before further upside.
