Ethereum price data points to impending rally above $3.4K

Ether ( ETH ) price experienced an 18% drop to $2,826 between July 1 and July 8 but has since partially recovered. Investors are understandably disappointed, particularly since $313 million in leveraged long positions were liquidated during this period. Although the current price of $3,100 is still below the previous $3,400 support level, Ether traders are gradually regaining their confidence, as indicated by onchain and derivatives metrics.

Ether supply on exchanges continues to decline

Even if the launch of the spot Ethereum exchange-traded fund (ETF) in the United States takes longer than expected, strong fundamentals suggest a likely price rebound soon. Gary Gensler, Chair of the US Securities and Exchange Commission, recently stated that approvals for S-1 filings are expected "sometime in the summer," which means before the end of September. However, the exact timeline remains uncertain, leaving traders with reasons to maintain a level of skepticism.

The excitement for the eventual launch grows as similar spot Bitcoin ( BTC ) ETFs have seen $654 million in inflows over the past three days. Matt Hougan, Bitwise's Chief Investment Officer, suggested that spot Ethereum ETFs could attract up to $15 billion in inflows in the first 18 months of trading. Even if this estimate is off by 50%, analysts believe that the Ether price will benefit from the portion of the supply that is locked in staking and decentralized applications (DApps).

Onchain analyst Leon Waidmann notes that 40% of Ether’s supply is locked, accounting for staking and DApps, while the supply on exchanges has decreased over the past month. Glassnode data shows that deposits on exchanges dropped to 12.21 million ETH from 13.34 million ETH two months earlier. Generally, having fewer coins available for immediate trading suggests that investors are less likely to sell in the short term.

The Ethereum network's total value locked (TVL), which measures the total deposits in its DApp ecosystem, including layer-2 bridges, is steady at 17.7 million ETH, unchanged from a month ago. This data supports the idea of reduced liquidity on fiat exchanges and shows resilience, considering that Ethereum's average transaction fees exceed $2, significantly higher than many of its competitors like Solana (SOL) and BNB Chain (BNB).

Ethereum layer-2 activity growth and resilient ETH derivatives markets

Investors seeking lower fees have benefited from Ethereum's layer-2 solutions , which have seen significant growth in activity over the past month.

Over the past 30 days, Ethereum DApps recorded a volume of $200.9 billion, but its layer-2 ecosystem expanded significantly. For example, Arbitrum's volumes surged to $52.4 billion, an increase of 94%, while Blast grew by 62% to $51.1 billion, and Base increased by 57% to $18.4 billion. In contrast, direct competitors like BNB Chain and Solana experienced an average decline of 27% during the same period.

Even as ETH traded at its lowest levels in nearly three months on July 8, Ether derivatives showed little enthusiasm from bears. The demand for call (buy) options was twice that of put (sell) options, indicating a lack of increase in volumes for neutral-to-bearish strategies using ETH options.

Data indicated a modest rise to 0.8 on July 8, meaning the volume traded in ETH put options was 20% smaller compared to call options. However, this indicator quickly reverted to its 7-day average near 0.55, favoring call options volumes by 85%. Both derivatives and onchain metrics support the bullish momentum, while the reduction in ETH available for trading on fiat exchanges also supports a potential short-term price rise above the $3,400 resistance.