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The price of Ethereum (ETH) reached a new three-year high of $3,274 on February 27th. However, there is an interesting development in the liquidity staking derivatives (LSD) markets that could potentially drive the price even higher.
Lido (StETH) has been outperforming Ethereum in the last four trading days, as the theme of ETH 2.0 re-staking has emerged as a leading factor in the ongoing rally. Looking at historical trends and beacon chain activity can provide insights into how this could impact the price of ETH in the coming days.
The transition of Ethereum to a proof of stake consensus in 2023 has given rise to the emergence of liquidity staking derivatives (LSDs). These tokens represent staked cryptocurrencies and serve two critical purposes. Firstly, they provide investors with access to the liquidity of their staked ETH coins while they are locked up on the beacon chain, reducing opportunity costs. Secondly, they allow retail investors who are unable or unwilling to meet the 32ETH liquidity requirement and technical complexities of running a node to participate.
Leading LSDs such as Lido (StETH) and Rocket Pool (RETH) are pegged to ETH prices. However, during times of high market demand, the real-time prices of these tokens can marginally exceed the ETH price. This rare market phenomenon has been observed in the last four trading days, marking the longest streak since the Proof-of-Stake transition in 2023.
Looking at the chart above, it is clear that the prices of liquidity staking derivative tokens have been surpassing ETH since February 23rd, indicating increasing demand for passive income among Ethereum investors. This trend has been further reinforced by the fact that Lido (StETH) has closed above ETH for three consecutive trading days, a market dynamic that has historically preceded ETH price upswings.
Over the weekend, Ethereum beacon chain contracts received a total of 205,085 ETH, further affirming the bullish outlook. As of February 26th, a total of 30.9 million ETH were locked up in Ethereum beacon chain staking contracts, with investors depositing an additional 228,117 ETH in the last three days. With ETH 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 Ethereum’s short-term price action as it improves the PoS network’s security and efficiency and temporarily reduces the number of coins available for trading on the open market.
The rise in demand observed in LSDs like Lido suggests that a majority of the staked ETH 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 the 4% APR from the beacon chain. Given the prevailing bullish sentiment in the crypto markets, these factors could combine to accelerate the ETH price rally towards the $3,000 mark in the coming weeks.
In summary, the increasing scarcity caused by rising staking deposits puts Ethereum in a prime position for an accelerated rally towards $3,500. However, in the short term, bullish traders may face a major roadblock at the $3,360 territory. A cluster of holders who acquired ETH at an average price of $3,366 could potentially book profits and create resistance at this level. However, if the bulls can break decisively above $3,360, a retest of $3,500 could be on the cards.
On the downside, if the Ethereum price reverses below $3,000, the bears could negate this optimistic prediction. 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 and trigger an instant rebound.
Overall, the future of ETH remains promising, with the current market dynamics and increasing interest in staking derivatives contributing to its upward trajectory.
