Ethereum price might be lagging Bitcoin (BTC), but now analysts at Kaiko note that global exchange liquidity is fast rising – so why is ETH price down?
While Bitcoin has been volatile, with seismic drops rocking the market today after the dramatic surge to break all-time highs in March, Ethereum presents a contrasting picture.
According to Kaiko, a blockchain analytics platform, ETH prices have been less volatile than the world’s leading cryptocurrency.
However, this seemingly sluggish behavior has been masking a massive development for Ethereum: Its liquidity across global centralized exchanges like Binance and Coinbase has been rapidly increasing.
Despite having slower price action than $BTC and many altcoins, $ETH has shown significant improvements in global centralized exchange liquidity pic.twitter.com/icT6pansrW
— Kaiko (@KaikoData) April 10, 2024
Currently, Ethereum is changing hands at over $3,400 and under immense selling pressure, looking at price action in the daily chart.
To illustrate, the coin is down -17% from all-time highs. If sellers press on as this is the case, ETH might drop to as low as $3,200.
(ETHUSDT)
But, even with falling prices, rising liquidity is a massive boost for the coin and this is key to ETH’s long-term outlook in the year ahead.
Ethereum Price Explained: Why Liquidity Is Everything
In crypto trading, liquidity dictates how easy it is to buy or sell a token via an exchange.
Typically, and because of how they are set up, centralized platforms like Binance or Coinbase are more liquid than decentralized exchanges like Uniswap.
When liquidity is high, the order book is deeper, meaning more participants are willing to transact at various price points.
In turn, a deeper order book means the asset in question is less volatile, offering traders a smoother experience and less risk.
Conversely, when liquidity is low, the asset being traded is volatile, and the experience is rough since trading is characterized by huge slippage.
What’s Behind This Ethereum Liquidity Spike?
Several factors could be contributing to Ethereum’s rising liquidity as identified by Kaiko analysts.
One possibility is the anticipation surrounding the potential approval of a spot Ethereum exchange-traded fund (ETF) by the strict United States Securities and Exchange Commission (SEC) in May 2024.
If approved, this product would allow institutional investors to enter the Ethereum market more easily, driving liquidity to new levels.
Furthermore, ETH has a positive correlation with Bitcoin alongside the rest of crypto markets.
Whenever BTC prices rally, as they have since October 2023, it can create a spillover effect, attracting investors to the broader crypto market, including Ethereum. In turn, this drives liquidity even higher.
The Bottom Line: Don’t Sleep on ETH Price After Fink Endorsement
Beyond price-related factors, Ethereum supporters are overly bullish. This optimism follows the endorsement by BlackRock, the world’s largest asset manager.
In a recent interview, their CEO said Ethereum could be a platform of choice for tokenization in the coming years – suggesting a turning point in the financial industry.
If Fink is right, the market could command trillions as traditional assets like real estate or securities are tokenized on a blockchain.
This will further lift Ethereum prices, with some suggesting large-scale asset tokenization could drive ETH price as high as $10,000.
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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
