Ethereum Price Rally Driven by Liquidity Staking Derivatives
ETH price reached a new 3-year peak of $3,274 on Feb. 27, and a rare dynamic observed in the liquidity staking derivatives (LSD) markets could drive it even further. Lido (StETH) price has outpaced Ethereum in each of the last 4 trading days as ETH 2.0 re-staking emerged as the leading theme for the ongoing Ethereum price rally. Historical trends and beacon chain activity provide insights into how this could impact ETH price action in the days ahead.
Liquidity Staking Derivatives (LSDs) Set New Record Amid ETH Price Rally
Ethereumโs transition to the proof of stake consensus in 2023 gave rise to the emergence of liquid staking derivatives (LSDs), which are tokens that represent staked cryptocurrencies. These LSDs serve two critical purposes:
- They give investors access to the liquidity of their staked ETH coins while they are locked up on the beacon chain, thereby mitigating the opportunity cost.
- They facilitate the participation of retail investors who are unable or unwilling to meet the 32ETH liquidity requirement and technical complexities of running a node.
Leading LSDs like Lido (StETH) and Rocket Pool (RETH) are pegged to ETH prices. However, during times of intense market demand, the real-time prices of these tokens marginally prod above ETH price. This rare market phenomenon has been observed in the last 4 trading days, which is the longest streak since the Proof-of-Stake transition in 2023.
ETH Stakers Make $740m Beacon Chain Deposits in 3 Days
According to official data from the Beacon chain, the total amount of ETH locked up in Ethereum beacon chain staking contracts reached 30.9 million as of Feb. 26, with investors depositing an additional 228,117 ETH over the past three days. With ETH price currently trading above $3,230, these newly-staked coins are worth approximately $740 million. This steady increase in ETH 2.0 staking is bullish for Ethereumโs short-term price action because:
- It improves the PoS networkโs security and efficiency during periods of high market activity.
- It temporarily reduces the number of coins readily available to be traded on the open market.
The rise in demand observed on LSDs like Lido suggests that the majority of the ETH staked coins could remain out of circulation for a longer period. By obtaining StETH, users can optimize their passive income and participate in DeFi activities, in addition to earning a 4% APR from the beacon chain. Given the prevailing bullish sentiment surrounding the crypto markets, these crucial factors could combine to accelerate the ETH price rally toward the $3,000 mark in the coming weeks.
Ethereum Price Forecast: $3,360 is the Next Major Roadblock
In summary, market scarcity induced by rising staking deposits puts Ethereum price in prime position for an accelerated rally toward $3,500. However, in the short-term, bullish traders face a major roadblock at the $3,360 territory. IntoTheBlockโs global in/out of the money (GIOM) data groups all existing ETH holders according to their historical entry prices. Currently, it depicts 1.2 million addresses that acquired 579,890 ETH at an average price of $3,366.
This cluster of holders could mount a roadblock if they opt to book some profits as Ethereum prices approaches their break-even point. However, if the bulls can stage a decisive breakout above $3,360, a retest of $3,500 could be on the cards. On the downside, the bears could negate this optimistic prediction if Ethereum price reverses below $3,000. However, there are 1.9 million addresses that acquired 1.8 million ETH at a minimum price of $3,037, and these investors may cover their positions to avoid losses and trigger an instant rebound.
Hot Take: Ethereum Price Rally Driven by Liquidity Staking Derivatives
The ongoing Ethereum price rally is being driven by liquidity staking derivatives (LSDs), such as Lido (StETH), which have outpaced Ethereum in recent trading days. The emergence of ETH 2.0 re-staking as a leading theme has contributed to this dynamic. With the increasing demand for passive income among Ethereum investors and the rise in beacon chain deposits, the majority of staked ETH coins could remain out of circulation for a longer period. This bullish sentiment, combined with market scarcity induced by rising staking deposits, sets Ethereum up for a potential rally toward $3,500. However, traders should be aware of a major roadblock at the $3,360 level.
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