Editor’s Note: In late August, ETH experienced a rare strong rally this year. From August 19 to 21, ETH rose from approximately $1,916 to an intraday high of $2,546, posting a significantly higher gain than BTC during the same period. The price did not quickly retrace but instead consolidated at a high level near $2,500, while the ETH/BTC exchange rate also rebounded sharply from its mid-year low.

This rally was initially fueled by improved risk appetite and short squeezes, but the article truly focuses on the supply and demand shifts behind the surge: weekly net inflows into U.S. spot Ethereum ETFs approached $700 million, approximately 42 million ETH entered staking, exchange balances declined by about 15% since early June, and corporate treasuries continue to accumulate. These combined forces are compressing the amount of ETH available for immediate sale.

Author Itai Smidt suggests that ETH’s circulating supply has significantly tightened since June, and new capital entering this thinner market could generate greater price elasticity. However, a reduction in supply does not guarantee a price increase; this rally also includes substantial short covering and leveraged positions, and the sustainability of ETF inflows remains unproven.

Therefore, the market next needs to confirm not only whether ETH can break above $2,550, but also whether institutional funds will continue to flow in, whether ETH/BTC can maintain its rebound momentum, and whether staking and corporate holdings will continue to absorb new supply. These factors will determine whether this rally is a short-lived squeeze or the beginning of a recovery in ETH’s relative valuation.

The following is the translated text:

In August, ETH finally broke free from its prolonged period of relative weakness that had lasted for over half a year.

From August 1 to 21, ETH rose from approximately $1,867 to a high of $2,545.88, achieving a cumulative gain of about 36%. Most of this increase occurred between August 19 and 21: ETH surged nearly 20% over three days, while BTC rose approximately 7% during the same period, marking the first time since 2026 that ETH significantly outperformed BTC in a major upward move.

The market then entered a high-level consolidation phase. ETH made multiple attempts to break above $2,500 to $2,550 but encountered selling pressure each time. As of the original article’s publication, the price remained around $2,450, less than 4% below the recent high. This suggests strong profit-taking pressure above $2,500, yet the market has not clearly retraced to its pre-rally range.

The author believes that the key factor in this market cycle is not just the price increase. Simultaneous developments—including ETF inflows, increased staking volumes, declining exchange balances, and corporate treasury accumulations—are further reducing the available tradable supply in the market compared to mid-year.

Under this structure, even limited new capital inflows could have a larger price impact. However, this logic still requires further validation from capital flows and price performance.

Short squeeze ignites the rally, but insufficient to confirm a trend reversal.

For the first seven months of this year, ETH has consistently underperformed compared to BTC. By mid-year, ETH had declined by approximately 32% year-to-date, while BTC fell by about 11%, resulting in a performance gap of more than 20 percentage points.

Consistently underperforming has also led to the accumulation of a large number of ETH short positions. According to the original text, the price rally in mid-August was amplified by approximately $2.9 billion in short squeezes; between August 23 and 24, around $60.61 million in ETH short positions were still liquidated.

From a market mechanism perspective, a short squeeze occurs when rising prices force short sellers to cover their positions, and these covering trades further drive prices higher. It can create sharp price rallies in the short term, but alone does not confirm a change in fundamentals or the long-term trend.

One positive aspect of this market cycle is that ETH did not immediately give back most of its gains after its rapid rise. The percentage pullback from their respective cycle highs is similar for BTC and ETH, suggesting that ETH’s prior relative outperformance has been temporarily preserved.

The ETH/BTC exchange rate has rebounded from a low of approximately 0.025 in June to around 0.033, representing a cumulative gain of about 32%. This shift indicates that the market is beginning to reprice ETH relative to BTC, but the current rate remains significantly below the peak levels of the previous cycle.

The author considers 0.033 as a key observation level. If ETH/BTC breaks above and holds this level, the logic of capital rotation may be strengthened; if it falls back below 0.030, it suggests that this round of relative strength may still be primarily driven by short covering.

ETFs saw nearly $700 million in inflows over the past week, as institutional demand rebounds.

ETF is the most easily quantifiable component of the recent demand for ETH.

For the week ending August 21, U.S. spot Ethereum ETFs recorded a combined net inflow of approximately $697 million, the highest weekly level since 2026; on August 21 alone, net inflows reached approximately $185 million. During the same period, spot Bitcoin ETFs saw net inflows of approximately $1.918 billion, bringing the total absorption across both products to about $2.62 billion.

Looking at daily data, Ethereum ETFs experienced net inflows for five consecutive trading days from August 17 to 21, amounting to approximately $30.85 million, $71.47 million, $189 million, $221 million, and $185 million respectively, indicating that capital did not concentrate solely on a single trading day.

The author concludes that institutional demand has rebounded. However, the simultaneous occurrence of ETF inflows and ETH’s price rise only indicates a strong correlation between the two and is insufficient to attribute the entire price increase solely to ETF buying. Improved risk appetite, short covering, and leveraged position expansion have also amplified price volatility.

Concentration of funds also requires caution. The original text states that on certain trading days, a single issuer absorbed approximately 78% of the net inflows into Ethereum ETFs. When demand is dominated by a small number of large funds, prices can be pushed higher in the short term, but this also means buying stability depends on a limited number of allocators.

The next potential catalyst comes from ETF staking. If regulators permit U.S. spot Ethereum ETFs to participate in staking, these products could not only gain exposure to ETH price movements but also share in network staking rewards, enhancing their total return appeal relative to BTC ETFs. However, until formally approved, this remains a policy expectation and cannot be counted as confirmed demand.

42 million ETH have been staked, reducing exchange balances by 15%.

Compared to the rapidly changing ETF flows, the adjustment in ETH’s supply structure may have more long-term significance.

According to the cited data, approximately 41.7 to 42 million ETH are currently staked, accounting for about one-third of the total supply. Meanwhile, the amount of ETH held by exchanges has decreased from around 7.7 million in early June to 6.54 million by mid-August, a decline of about 15%, equivalent to 1.16 million ETH leaving exchange platforms.

Staking refers to holders depositing ETH into the Ethereum proof-of-stake network to participate in validation and earn rewards. Staked ETH is not permanently locked, but withdrawing and selling it requires a specific process, and its immediate liquidity is typically lower than assets held on an exchange.

A decrease in exchange balances does not mean these ETH will never be sold, but it can reduce the amount of supply available for immediate trading. When ETFs, corporate treasuries, and other large buyers enter simultaneously, thinner order book depth may amplify price movements.

The author believes this can partially explain the difference in price gains between ETH and BTC during this market cycle: approximately $697 million in weekly net inflows into Ethereum ETFs corresponded to nearly a 20% rally in ETH, while the larger inflows into Bitcoin ETFs generated relatively limited short-term price increases.

However, this comparison does not account for differences in leverage, market depth, or short positions. More accurately, the supply tightening may have increased ETH’s sensitivity to new demand rather than solely determining its price increase.

After Ethereum completed its merge and transitioned to a proof-of-stake mechanism, the new issuance rate has dropped significantly compared to the previous proof-of-work era, reducing long-term dilution pressure. The original text concludes that ETH’s supply structure is now more favorable than before; however, an increase in staking volume cannot be simply equated to “supply disappearance,” as a substantial portion of the staked assets likely originated from long-term holders with low selling intent.

In contrast, the decline in exchange balances is closer to an active choice by holders, and is therefore regarded by the author as a more meaningful indicator of supply.

BitMine holds nearly 5% of ETH, with structural buying accompanied by concentration risk.

Corporate treasuries are becoming a new variable in the demand structure for ETH.

BitMine disclosed that, as of August 24, the company held 5.8476 million ETH, an increase of 32,447 ETH from the previous week, with an average cost of approximately $2,440; approximately 5.0673 million ETH have been staked. Based on the company's referenced total ETH supply of about 120.7 million, its holdings represent approximately 4.8%.

This scale is close to ninety percent of the exchange's ETH balance as stated in the original text. The holding and purchasing pace of a single entity is sufficient to influence the marginal supply and demand of ETH.

BitMine refers to its goal of holding 5% of the total ETH supply as the "Alchemy of 5%." Based on the company's disclosed holdings, it is now relatively close to achieving this target. However, corporate plans cannot be directly interpreted as guaranteed buying activity; future purchases will still depend on equity financing capacity, company valuation, and market conditions.

Corporate treasuries can provide structural demand with relatively lower price sensitivity, while also increasing position concentration. Should a company’s financing conditions deteriorate, its stock price come under pressure, or its treasury strategy change, this concentrated positioning may turn into potential supply.

Therefore, BitMine's increased holdings have a moderately positive impact on the short-term supply and demand for ETH, but their long-term effects are not uniformly bullish. The market must monitor not only the scale of purchases but also the funding sources, staking ratios, and balance sheet capacity.

Whether the new market cycle can be confirmed depends on three key validations.

After a rapid rise, ETH's short-term technical indicators have become significantly overbought.

Multiple data sources show that Ethereum’s daily Relative Strength Index (RSI) rose to the 75–85 range, exceeding the typical 70 threshold used to identify overbought conditions. The MACD has flattened at elevated levels, indicating that price momentum remains strong but new upward energy is beginning to wane. The Market Fear & Greed Index also climbed from 46 on August 19 to 73–74, signaling a rapid shift in sentiment from caution to greed.

The $2,500 to $2,550 range is the most prominent resistance zone currently. ETH has made multiple recent attempts to break above this range but has consistently faced selling pressure; the key support level below lies near $2,330 to $2,360.

The reduced supply has provided ETH with better price elasticity, but it does not guarantee a sustained one-sided move. To determine whether a new trend is forming, the following three variables need to be monitored:

First, whether the ETF can sustain net inflows. The author considers a weekly inflow of $300 million as a reference level; if funds continue to flow in, the probability of ETH retesting $2,550 may increase. If the ETF quickly turns to net outflows, the sustainability of August buying pressure will be called into question.

Second, can ETH/BTC hold at 0.033? If the relative exchange rate continues to strengthen, it could signal a shift from a mere USD price rebound to a sustained recovery of ETH relative to BTC.

Third, can the price break above $2,550 and hold the support range of $2,330 to $2,360? A breakout upward would reinforce the trading thesis of tightening supply and demand; a breakdown below this consolidation range would suggest that leverage and short covering may still be the primary drivers of this rally.

The supply structure of ETH has indeed tightened further since June, with ETFs and corporate treasuries generating additional demand. However, until $2,550 is effectively broken, "a new market cycle" remains an unverified market assumption.