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After hitting an all-time low of $2535 (based on the MCS derivatives exchange market price), Ethereum is recording a steady rise of 27.6% to $3235.20 as of 1 am (UST) on August 20. According to several experts, if the rally continues with this trend, it is expected to break through the previous high of $4383.90 (based on MCS Exchange as of May 12, 2021) and break a record high sooner than Bitcoin.
As you can see in the graph below, these price fluctuations are closely related to the volume of Ethereum on the exchange.
<Source: CryptoQuant, ETH: All Exchanges Reserve Table>
- Blue line: Refers to the volume of Ethereum in exchanges
- Black line: Ethereum price in USD
Compared to September of last year, the volume of Ethereum in centralized exchanges has been steadily declining. As a result, the price of Ethereum is rising in the reverse direction. This can be interpreted as a decrease in selling pressure. If the volume is already high, more cryptocurrency holders are more likely to sell at any time, but conversely, if it is not, the probability will be lower. In other words, if the supply of cryptocurrencies on the exchange gradually decreases, it is similar to reflecting the psychology of rising prices as long as demand does not fall according to the economic principle of supply and demand.
After the London hard fork, which was recently the hottest event in the Ethereum market, was completed, Ethereum fees were significantly reduced. Due to the reduced fees, many transactions increase in DeFi (Decentralized Finance), NFT, and blockchain games. The basic fee generated is incinerated every time a transaction occurs to control the Ethereum supply. In particular, the amount of stakes in Ethereum 2.0 continues to increase.
The amount of Ethereum to be staked was 6,796,828 ETH (approximately 25.8 trillion as of 20 days) as of August 20, 2021, which is nearly double that of last March, which is less than 6% of the total Ethereum supply. In other words, there is much more left for staking in the future. The meaning of staking can be interpreted as an increasing number of long-term holders who lock up rather than buying and sell Ethereum as practical use becomes possible in fields such as DeFi.
Indeed, the change in the value of Ethereum is still seen as positive, considering the exchange's reduced volume of Ethereum, the supply adjustment due to incineration, and the amount that is being staked and tied to Ethereum 2.0. However, it is necessary to recognize the risk of a bubble in cryptocurrencies, which has always been a concern.
When investing, based on the data described above, a trader needs to analyze whether the technology development project that can support the cryptocurrency is progressing smoothly and whether the technology is still under preparation.
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