Ethereum Hits Record Price as Potential Supply Crunch Looms

It’s a good day to be an Ethereum investor, as the price of the coin set a new all-time high price of $2,665—potentially signaling the start of a new rally. 

The timing is likely not coincidental. Last week, the first Ethereum ETFs began trading in Canada. These products allow institutional investors to buy into ETH without purchasing the actual cryptocurrency, circumventing the need to deal with crypto exchanges or digital wallets. What’s more, an upcoming change to the Ethereum network that will effectively reduce the supply of ETH has holders feeling bullish.

Ethereum (ETH) started the week trading at around $2,400, having fallen by around $200 since hitting an all-time high price of $2,646 last week. It's currently trading for about that price now, up 5% on the day, according to data from Nomics.

ETH has been on an incredible run in the last year. Buoyed by booms in both the decentralized finance (DeFi) and NFT sectors, the price of Ethereum has skyrocketed by more than 1,000% since early 2020. (Bitcoin, by contrast, has increased in value by about 600%.)

DeFi is a catch-all term for a group of financial products that enable users to lend, borrow, and trade digital assets without any intermediaries. This essentially allows for bank-like services without the need for a bank, with services such as Uniswap, Compound, and Aave becoming increasingly popular among a growing number of DeFi users.

Institutional interest in ETH

Meanwhile, the world of traditional finance is also starting to pay closer attention to Ethereum; investments in ETH as a potential hedge against inflation, or simply as a way to diversify portfolios, are becoming more common.

For example, the Chinese app company Meitu recently announced a purchase of roughly $50 million worth of ETH. And, in Canada, three Ethereum ETFs—launched by Purpose Investments, Evolve ETFs, and CI Global Asset Management—began trading last week. ETFs allow investors to buy shares and bet on the value of an asset without actually purchasing the underlying asset—in this case, that means betting on ETH without the added friction of buying from a crypto exchange and storing those coins in a digital wallet.

The Ethereum ETFs got off to an impressive start last week in the Great White North: the funds collectively generated more than $138 million in trading volume within the first three days.

Investors down with EIP (1559)

On top of that, the Ethereum network is set to undergo a significant change in the next few months that is arguably the primary reason that crypto investors are currently bullish on the asset.

Ethereum Improvement Proposal 1559 (or EIP-1559 for short) is set to go live in the network's scheduled "London" hard fork on July 14. The "improvement" is aimed at getting a handle on Ethereum's gas fees, essentially the cost of making transactions on the network, which are currently at record highs.

The upgrade will change the way that these fees are calculated and paid out to miners, the people who help secure the network and validate transactions. A certain amount of ETH that would have otherwise gone to miners will instead be "burned" (i.e., destroyed). The idea is that this will help reduce the cost of running smart contracts on Ethereum. But, as a side effect, the total supply of ETH will also be reduced, which some analysts believe will lead to the demand for ETH outpacing its supply.

While there may be plenty of reason to be optimistic about Ethereum's near-term future, recent downward selling pressure and wild price swings may still deter more risk-averse investors.