How is Ethereum doing these days?

The approaching Cancun upgrade and the Ethereum futures ETF make Ethereum's current trend slightly better than Bitcoin, and may become an important support for Ethereum's trend.

ETH daily destruction hits a new low this year

Since the London upgrade in August 2021, the Ethereum blockchain has started the ETH burning mechanism to optimize transaction fees. EIP-1559 divides the gas fee that needs to be paid to miners on Ethereum into two parts: base fee and miner tip. The base fee is the fee that users must pay, which will be destroyed rather than owned by miners; while the miner tip is a dynamic fee used to encourage miners to prioritize user transactions when transactions are congested.

According to data from The Block, the daily destruction of ETH on August 18, 2023 was 946.63 ETH, a new low since the beginning of this year, and also a relative low two years after the implementation of EIP-1559.

Since ETH destruction is triggered when a transaction occurs on the ETH mainnet, the recent decline in ETH destruction indicates a weakening of Ethereum L1 activity. This is because market participants have shifted their attention to the more scalable L2. Base's on-chain activities and the diversion of L2 such as Optimism are important reasons for the recent decrease in the number of ETH destructions. In addition, projects such as zkSync and StarkNet, which are in the development stage, have also indirectly caused a decrease in the number of ETH destructions.

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

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

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

Two other L2s that have recently branched off from the Ethereum mainnet include zkSync and StarkNet, which are 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 the reason why these two projects, which are still in the development stage, have attracted attention is that they may incentivize their early users through airdrops when they are officially launched. Therefore, Zksync and Starknet’s respective test networks have a large influx of active users.

The rise of L2 may reduce the amount of ETH destruction in the short term, but in the medium and long term, it is particularly important to support the expansion and ecology of ETH. Especially after the implementation of EIP-4844, the cost of L2 will be greatly reduced, allowing the Ethereum network to be used on a larger scale.

ETH staking data changes

Judging from the current pledge data, the Shanghai upgrade has had a profound impact on the ETH pledge field. One of the most significant indicators is the substantial increase in the number of ETH pledged. According to Token Terminal statistics, as of August 20, the number of ETH pledged reached 23.72 million, equivalent to about 19.44% of the total circulation.

Since the Shanghai upgrade (opening up staking withdrawals), the net increase in ETH staked has reached 6.28 million, which shows that the Shanghai upgrade has removed doubts for investors in staking ETH.

From the data provided by Token Unlocks, it can be seen that the number of ETH validators has been steadily increasing, currently reaching 740,000, and the annual yield of staking remains at 4.97%. It is worth noting that after the recent decline in the crypto market, the number of daily ETH withdrawals continues to decline.

Ethereum Development Progress

On August 17, 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 testnet and operate according to testing goals.

A testnet is defined as a cloned blockchain where developers can test applications and smart contracts before deploying them to the mainnet. Ethereum currently has two main testnets: Goerli and Sepolia. However, according to the details determined in the Ethereum developer meeting, Goerli is expected to be replaced by the Holesky testnet soon. That is, Holesky will become a testnet for Ethereum staking, infrastructure, and protocol development. Sepolia will continue to serve as a network for testing Dapps, smart contracts, and other EVM functions.

Ethereum Futures ETF Expectations

On August 18, according to Bloomberg, the U.S. Securities and Exchange Commission (SEC) plans to approve the first Ethereum futures ETF. It is not immediately clear which funds will be approved. According to people familiar with the matter, 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 at the same time. Asset management company Volatility Shares plans to launch an Ethereum futures ETF on October 12, which will be the first such fund in the United States. Since submitting the documents in July, the SEC has not asked the asset management company to withdraw the application, indicating that it is possible to launch such a fund in the fall.

ETH whales reduce their holdings

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

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

Currently, ETH's RSI indicator has dropped below 30, which means it has entered the technical oversold stage. Strategic investors may use it as a reference indicator to start buying.

For example, after the market fell, three addresses marked as "smart whales" (with a history of buying low and selling high in previous ETH trading cycles) made buying moves. One of the addresses woke up after a 5-month hibernation and spent $1.52 million to buy 907.4 ETH at $1,680.

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

The third address, with a tag starting with 0x828, bought 2,600 ETH at an average price of $1,682, totaling $4.38 million. The 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 commentators believe that these whales may be waiting for the SEC to officially confirm and approve the Ethereum futures ETF.

On the whole, the approaching Cancun upgrade and the Ethereum futures ETF make Ethereum's current trend slightly better than Bitcoin, and may become an important support for Ethereum's trend.