Ethereum Merge Sparks Supply-Squeeze Price Jump Over 40%. Should You Buy?

Several factors are cutting the available supply of Ethereum on crypto exchanges, driving up the price of the ETH coin.

Ethereum (ETH) -- the second largest cryptocurrency by market cap size -- has seen a lot of positive activity in recent days and weeks. According to CoinMarketCap.com, it's currently trading at $3,440.88 at press time, which reflects a nearly 15% increase in the past week and a 40% jump since Mar. 7, when its price was $2,462.84. Additionally, its 24-hour trading volume last night was up 93%, compared to 71% for Bitcoin and 17% for Dogecoin, demonstrating a spiking interest in ETH.

There are a few factors coming together that are driving this price and volume action for Ethereum.

High interest in the pending Ethereum Merge

Ethereum developers have been working for years to move from the blockchain's original proof-of-work (PoW) consensus model to a more eco-friendly proof-of-stake (PoS) method. This network upgrade is expected to exponentially boost the number of transactions per second the blockchain can handle, reduce congestion, quicken settlement speeds, and lower transaction fees.

The blending of the PoW chain with the enhanced PoS blockchain has been called ETH 2.0 and Ethereum Consensus Layer -- but its most recently been dubbed the "Ethereum Merge." That name seems to be sticking, as Google Trend shows searches for "Ethereum Merge" have increased 300% over the past week.

The estimated date for completion of the Ethereum Merge is currently targeted for this June or sometime in the third quarter, which could be driving investors to "buy the rumor, sell the news."

Ethereum supply on crypto exchanges is at a two-year low

However, buying the rumor will be tricky, as the supply of tradable ETH on cryptocurrency exchanges has been contracting. According to on-chain analytics tracking website Glassnode, the available supply of ETH across 18 different exchanges is currently 17.97% of the circulating volume, marking its lowest percentage available since Mar. 21, 2022, when it was 28.54%.

That suggests that investors have been moving ETH off exchanges into off-chain crypto wallets for personal storage or locked into decentralized financing (DeFi) activities such as interest-bearing accounts for liquidity or lending purposes. In fact, Glassnode shows that since Jan. 9, 2022, the amount of ETH that has been locked into DeFi projects has increased 16.35% to a total value locked (TVL) of more than $220.42 billion.

Lastly, the supply is further constricted as a portion of every newly minted ETH gets burned intentionally to make the coin more deflationary and limit the circulating supply. Since the rollout of the Ethereum Improvement Proposal (EIP)-1559 last August, more than 2 million ETH have been burned, producing a net reduction in supply of 64% according to WatchTheBurn.com.

All of these constraints have created a supply squeeze that's been driving up the price of the ETH coin, and there's no indication the tight supply will change. While every investor needs to conduct their own research, it's safe to expect this upward pricing trend to continue until the completion of the Ethereum Merge.