Editor's Note: In late August, ETH displayed a rare show of strength for the year. From August 19 to 21, ETH surged from around $1916 to an intraday high of $2546, significantly outperforming BTC during the same period. Instead of a swift retracement, the price consolidated near $2500, and the ETH/BTC exchange rate saw a notable recovery from its mid-year lows.
This rally was initially fueled by improved risk appetite and short squeezes, but the article delves into the supply-demand dynamics behind the surge: the U.S. Ethereum spot ETF saw net inflows of nearly $700 million in a single week, around 42 million ETH were staked, exchange balances decreased by about 15% since early June, and corporate treasuries continued to accumulate. These combined forces are compressing the available ETH for immediate sale.
Author Itai Smidt suggests that the circulating supply of ETH has significantly tightened since June. With new funds entering a thinner market, there may be greater price elasticity. However, a decrease in supply does not guarantee a price increase. This rally also includes significant short covering and leveraged funds, 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 $2550, but also whether institutional funds can continue to flow in, whether the ETH/BTC pair can hold onto its rebound gains, and whether staking and corporate holdings will continue to absorb new supply. These variables will determine whether this rally is a rapid short squeeze or a precursor to ETH's relative price discovery.
Below is the translated excerpt of the original article:
In August, ETH finally broke free from its prolonged relative weakness over the past half year.
From August 1 to 21, ETH surged from around $1867 to a high of $2545.88, a cumulative increase of approximately 36%. The majority of this surge occurred from August 19 to 21, where ETH rose nearly 20% in three days. During this period, BTC rose by about 7%, marking the first time since 2026 that ETH has significantly outperformed BTC in a major uptrend.
The market then entered a phase of consolidation near the highs. ETH made several attempts to break through the $2500 to $2550 range but faced selling pressure. At the time of writing, the price was still hovering around $2450, less than 4% away from the peak. This indicates strong profit-taking pressure above $2500, but the market has not yet clearly retraced to pre-surge levels.
The author believes that the key to this round of the market is not just the price increase. ETF inflows, increasing staking volume, decreasing exchange balances, and corporate treasuries adding to their holdings are all happening simultaneously, further reducing the available tradable chips in the market.
In this structure, even with limited new capital inflow, a greater price impact may occur. However, this logic still needs the flow of funds and price performance to continue to validate.
Short Squeeze Sparks the Market, But Not Enough to Confirm Trend Reversal
In the first seven months of this year, ETH's performance continued to lag behind BTC. By mid-year, ETH had experienced a YTD decline of about 32%, while during the same period, BTC's decline was around 11%, a performance difference of over 20 percentage points.
The prolonged underperformance has also led to a significant accumulation of ETH short positions in the market. According to the original text, the mid-August surge was amplified by approximately $2.9 billion worth of short squeezes; on August 23rd to 24th, about $60.61 million worth of ETH short positions were liquidated.
From a market mechanism perspective, a short squeeze refers to a price increase that forces short sellers to cover their positions, which in turn further drives up the price. It can create a sharp rally in the short term but cannot independently prove that the fundamentals or long-term trends have changed.
A relatively positive aspect of this market cycle is that after the rapid rise, ETH did not immediately give back most of its gains. The retracement percentages from their respective highs are similar for BTC and ETH, indicating that ETH's previous relative advantage has been temporarily preserved.
The ETH/BTC exchange rate has also rebounded from around 0.025 in June to around 0.033, representing a cumulative rebound of about 32%. This change indicates that the market is starting to reevaluate the ETH-to-BTC valuation, but the current rate is still well below the previous cycle's peak.
The author considers 0.033 as a key observation line. If the ETH/BTC can break through and hold above this level, the capital rotation logic may be strengthened; if it falls below 0.030 again, it means that the current relative strength may still mainly come from short squeeze.
ETF Weekly Inflows Near $700 Million, Institutional Demand Rebounding
ETFs represent the most easily quantifiable part of the new ETH demand this cycle.
For the week ending August 21st, the total net inflow of the US Ethereum Spot ETF was approximately $697 million, reaching the highest weekly level since 2026; of which, the net inflow on August 21st was about $185 million. During the same period, Bitcoin Spot ETF saw a net inflow of around $1.918 billion, with a total inflow of about $26.2 billion for the two types of products.
From daily data, the Ethereum ETF saw net inflows for five consecutive trading days from August 17 to 21, amounting to approximately $30.85 million, $71.47 million, $189 million, $221 million, and $185 million, indicating that funds did not only enter on a single trading day.
Based on this, the author believes that institutional demand has rebounded. However, the ETF inflows coinciding with ETH's rise only indicate a strong correlation between the two, and it is not enough to attribute the entire increase to ETF buying pressure. Improvement in risk appetite, short covering, and expanding leverage positions are also amplifying price volatility.
The concentration of funds also needs attention. The original text stated that on certain trading days, a single issuer at one point absorbed approximately 78% of the Ethereum ETF net inflow. Dominance of a few large funds in demand can quickly drive up prices but also means that the stability of the buying side depends on a limited number of allocators.
The next potential catalyst comes from ETF staking. If regulators allow US Ether ETFs to participate in staking, these products may not only gain ETH price exposure but also potentially share network staking rewards, thereby enhancing their relative attractiveness in total returns compared to BTC ETFs. However, until formal approval is granted, this remains a policy expectation and should not be factored into confirmed demand.
42 Million ETH Staked as Exchange Balances Drop by 15%
Compared to the rapidly changing ETF flows, the adjustment in ETH's supply structure may have longer-term implications.
According to the data cited in the original text, there are currently around 41.7 million to 42 million ETH staked, accounting for approximately one-third of the total supply. Meanwhile, the amount of ETH held by exchanges decreased from about 7.7 million in early June to 6.54 million in mid-August, a 15% decrease, equivalent to 1.16 million ETH leaving trading platforms.
Staking refers to holders depositing ETH into the Ethereum proof-of-stake network to participate in validation and receive rewards. Staked ETH is not permanently locked, but withdrawing and selling requires a certain operational process, and its immediate liquidity is usually lower than assets held on exchanges.
A decline in exchange balances does not mean that these ETH will never be sold, but it can reduce the chips available for immediate trading on the market. When ETFs, corporate treasuries, and other large buyers enter simultaneously, the thinner trading depth can magnify price changes.
The author suggests that this could partially explain the difference in price increases between ETH and BTC in this market cycle: around $697 million Ethereum ETF weekly net inflows corresponded to nearly 20% of ETH's phase increase, while the larger-scale Bitcoin ETF inflows led to relatively limited short-term gains.
However, this comparison cannot rule out differences in leverage, market depth, and short positions. More accurately, supply tightening may have increased ETH's sensitivity to new demand rather than solely determining its price increase.
After Ethereum completes the merge and transitions to a proof-of-stake mechanism, the new issuance has significantly decreased compared to the previous proof-of-work period, reducing long-term dilution pressure. The original text believes that the supply structure of ETH is more favorable than before, but the increase in staking participation cannot simply be equated to "supply disappearance": A significant portion of the assets participating in staking may have already come from long-term holders with a low willingness to sell.
In contrast, the decrease in exchange balances is closer to holders' active choices, and therefore, the author also considers it a more meaningful supply indicator.
BitMine Holds Nearly 5% of ETH, Structural Buying Pressure Alongside Concentration Risk
Corporate treasuries are becoming a new variable in ETH's demand structure.
BitMine disclosed that as of August 24, the company holds 5,847,600 ETH, an increase of 32,447 ETH from the previous week, with an average cost of around $2,440; of which approximately 5,067,300 ETH are already staked. Based on the company's cited total supply of about 120.7 million ETH, its holdings account for approximately 4.8%.
This scale is approaching 90% of what the original text referred to as exchange ETH balances. The holdings and buying pace of a single company have been sufficient to impact ETH's marginal supply and demand.
BitMine refers to holding 5% of the total ETH supply as the "Alchemy of 5%" goal. According to the company's disclosure, they are relatively close to this target. However, corporate plans cannot be directly viewed as definitive buying pressure, and subsequent purchases will depend on equity financing ability, company valuation, and market conditions.
Corporate treasuries can provide structurally lower price-sensitive demand and increase holding concentration. Once the company's financing conditions deteriorate, the stock price is under pressure, or treasury strategies adjust, concentrated holdings may turn into potential supply.
Therefore, BitMine's accumulation is positive for ETH's short-term supply and demand imbalance, but its long-term impact is not unilaterally favorable. The market needs to focus on both its purchasing scale and funding sources, staking ratio, and balance sheet resilience.
Can the Establishment of a New Bull Market be Achieved? Key Depends on Three Validations
After experiencing a rapid surge, ETH's short-term technical indicators have significantly overheated.
Based on various data sources, the ETH daily Relative Strength Index (RSI) surged to a range of 75 to 85, exceeding the usual overbought threshold of 70. The Moving Average Convergence Divergence (MACD) flattened out at a high level, indicating price resilience but a weakening momentum. The market fear and greed index also rose from 46 on August 19 to 73 to 74, signaling a rapid shift from caution to greed.
The $2500 to $2550 range is currently the most evident resistance area. ETH has made multiple attempts to break through this range recently but has faced selling pressure each time; a significant consolidation zone below is located around $2330 to $2360.
The supply tightening has provided ETH with better price support, but it does not guarantee a one-sided market continuation. To determine whether a new trend will establish, three key variables need to be monitored:
First, whether ETF inflows can be sustained. The author considers a weekly inflow of $300 million as a reference level; if funds keep flowing in, the probability of ETH retesting $2550 may increase. Should ETFs quickly turn to outflows, the sustainability of the August buying pressure will be questioned.
Second, whether the ETH/BTC pair can hold above 0.033. A continued strengthening of the relative exchange rate implies the market may shift from a USD price rebound to an ongoing ETH/BTC recovery.
Third, whether the price can break above $2550 and hold the $2330 to $2360 support. A breakout to the upside will reinforce the trading logic of supply and demand tightening; if the consolidation platform is breached, it indicates that leverage and short covering may still be the primary drivers of this uptrend.
Indeed, ETH's supply structure has further tightened since June, with additional demand from ETFs and corporate treasuries. However, until $2550 is convincingly breached, the concept of a "new uptrend" remains a market judgment awaiting confirmation.
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