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After months of anticipation, the Securities and Exchange Commission (SEC) appears ready to approve spot Ethereum exchange-traded funds (ETFs), setting the stage for a significant increase in demand for Ethereum (ETH) that could lead to a supply shortage.
Ethereum Co-Founder Predicts Supply Squeeze With Potential Approval of Ethereum ETFs
Joe Lubin, co-founder of Ethereum and CEO of Consensys, made a statement about ETFs in an interview.
Lubin explained that institutions investing in Bitcoin through recently launched ETFs are likely to diversify their holdings with Ethereum once spot Ethereum ETFs receive approval.
“There will be a fair amount of natural, pent-up pressure to buy Ethereum through ETFs,” he said. However, this demand may face a more limited supply compared to the Bitcoin ETFs approved earlier this year.
In January, when spot Bitcoin ETFs were approved, authorized participants — the firms responsible for purchasing Bitcoin on behalf of the ETFs — were able to easily purchase idle coins available on exchanges or through over-the-counter transactions.
However, the situation with Ethereum is different. On-chain data shows that more than 27% of the total Ethereum supply is currently staked on the Ethereum network, generating returns for holders and therefore kept out of direct circulation.
“The bulk of Ethereum is used in the core protocol, DeFi systems, or DAOs,” Lubin said, referring to decentralized autonomous organizations.
This locked supply, combined with Ethereum's market dynamics, could make Ethereum's price more sensitive to expected inflows from ETFs.
Moreover, increased activity on the Ethereum network will trigger the burning of some of the existing Ethereum supply over time, further tightening the current supply. The deflation mechanism introduced by Ethereum's EIP-1559 upgrade contributes to scarcity by systematically reducing the supply of Ethereum in circulation.
The scenario for Ethereum ETFs could parallel or even exceed the supply pressures faced by Bitcoin ETFs.
Lubin emphasized the broader significance of this development, calling it a “profound turning point” for Ethereum and the cryptocurrency industry as a whole.
*This is not an investment recommendation.