Ethereum’s Mid-Term Outlook Remains Bullish Amid Short-Term Profit-Taking Risks and Low Exchange Supply

• Ethereum (ETH) showcases a promising long-term trajectory, driven by recent capital inflows amid ongoing market fluctuations.

• While Layer 1 (L1) network activity has been underwhelming, momentum in Layer 2 (L2) solutions reflects a significant rebound, indicating potential for future growth.

• “The average new and resurrected addresses are down compared to year-to-date values, but churn is notably lower,” says Glassnode, highlighting a shift in user behavior post-upgrade.

Explore Ethereum’s recent performance shifts, with capital inflows rising significantly and a pronounced supply reduction on exchanges signaling potential bullish momentum.

Capital Inflows Signal Renewed Investor Confidence in Ethereum

Despite a lag in the L1 network’s activity, Ethereum’s capital inflows witnessed an impressive surge of $3.8 billion following the Pectra upgrade. This uptick illustrates a shift in market sentiment as realized cap growth indicates renewed interest in the altcoin.

As Glassnode noted, the Realized Cap—the total capital invested in the asset—has rebounded from its Q1 downtrend, suggesting that investors are regaining faith in ETH as we move into Q2.

Source: Glassnode

Should this trend persist, ETH price may position itself for a further upward movement. A potential supply shock looms as the amount of ETH held on exchanges has fallen to a decade low below 5%, according to data from Santiment.

“Ethereum has under 4.9% of its supply on exchanges for the first time in its 10+ year history,” a remarkable statistic emphasizing strong market dynamics.

Source: Santiment

The reduction of 15.3 million ETH available on exchanges points to a robust accumulation trend, leading to diminished sell pressure and a potential setup for significant price increases as demand rises. However, the short-term market faces profit-taking dynamics stemming from Q2 recoveries, likely resulting in a brief period of consolidation.

Despite these short-term risks, market positioning remains bullish, evidenced by data indicating that from late April, demand for ETH options has outweighed sell-side bets.

Market Sentiment and Option Trends Favor a Positive Outlook

Analysis of Options data reveals a negative 25 Delta Skew for both 1-week (-3.5%) and 1-month periods (-4%), indicating that traders are demonstrating a preference for calls (bullish bets) over puts (bearish bets). This sentiment reflects a market expectation of rising prices.

Source: Velo

In summary, market dynamics suggest a heightened probability of an upward movement for Ethereum, currently trading around $2,500, reflecting approximately 60% distance from its peak of $4,000 seen earlier in the cycle.

Conclusion

To conclude, while short-term profit-taking may present temporary challenges, the long-term outlook for Ethereum appears positive. With strong capital inflows, decreasing supply on exchanges, and favorable options market trends, ETH is positioned for potential substantial growth as investor confidence strengthens.