Ethereum: Record amount of Ether locked into smart contracts

According to the latest on-chain data from Glassnode is now more than 33 percent of all available Ethereum locked into smart contracts - a record high that marks a milestone for the network. This historic moment is a testament to the ever-growing belief in the power and utility of the Ethereum blockchain, which acts as the decentralized backbone of an ever-expanding ecosystem.

The amount of Ethereum locked into smart contracts reflects the active use of the network, especially in staking and the DeFi.

More and more investors withdraw their Ethereum from exchanges

One of the main reasons for this development is that more and more investors, similar to Bitcoin, are withdrawing their ETH from centralized crypto exchanges to use it in the Ethereum ecosystem, especially for staking. The following charts from Glassnode and CryptoQuant impressively illustrate this shift in liquidity.

The percentage of total Ethereum in circulation on centralized crypto exchanges has dropped from more than 25 million ether to less than 14 million at the time of writing since the Merge on Sept. 15, 2022.

At the same time, there has been an impressive increase in the stakingrate, which has risen from 11.61 percent to about 30 percent, as the chart from CryptoQuant illustrates.

The more ETH locked into smart contracts, the lower the amount of ETH available on the market as it is used in staking, DeFi and the like. This in turn means that the supply of ETH available for sale decreases.

Bullish outlook for Ethereum: shortage and deflation as price drivers

According to the classical laws of supply and demand, a decrease in the availability of a good - while demand remains the same or increases - usually leads to an increase in price.

In a dynamic bull market, Ethereum's deflationary characteristics could amplify these effects. With the EIP-1559 upgrade, the ETH network burns some of the transaction costs, further reducing Ethereum supply. During high network activity, characteristic of bull markets, this decrease in ETH supply is amplified. This mix of supply reduction and increased burn mechanism thus acts as oil poured on the fire in a bull market. Current developments should therefore have a fueling effect that could benefit the ETH price in the future.

Overall, these factors reinforce the bullish outlook for Ethereum. The increasing amount of Ethereum in smart contracts, which reduces liquidity, along with deflationary characteristics that further reduce supply, suggest that Ethereum could be in a strong position for 2024.

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