NEWSLETTER
Ethereum (ETH) has been trending lower with the $2,000 level forming a crucial resistance level in recent months.
While Bitcoin (BTC) posted gains of 11.94% past $30,000 in June after BlackRock filed an ETF application with the US Securities and Exchange Commission, ETH’s lead remained around at 3.16%.
In the first week of July, the buyers tried to push the price past the crucial resistance around $1900, however a failed breakout exposed the price to further correction.
The Ethereum network also witnessed a decline in activity, evident in year-long lows in total transaction fees. The price of leading NFT collections on Ethereum plummetedwhile DeFi activity stalled due to low returns.
However, the downside may be restrained as demand for liquid staking derivatives (LSD) like Lido’s stETH continues to grow, rising faster than investors move to sell.
LSD activity is on the rise
While Ethereum’s main use cases in NFT trading and DeFi activity suffered a downturn in June, the LSD narrative continued to grow.
Onchain analytics firm Glassnode wrote in its latest report that deposits into the staking contract have “been greater than, or equal in scale to, exchange inflows since Shanghai went live,” suggesting that more ETH is moving toward staking than selling on exchanges.
The total ETH deposited in staking contracts is 19.7% compared to the centralized exchange balance of around 12.8%. LSD platforms captured the most input, followed by independent validators and engagement-as-a-service clients.
Ether staking deposits increased significantly after the Shanghai update in April as confidence increased with active redemptions. Among LSD platforms, Lido led the field, followed by Rocket Pool and Frax.
The Glassnode report also suggested that the network “has yet to see an appreciable influx of new holders,” as new addresses containing stETH from Lido have been “more or less unchanged to date.”
Currently, 20% of the total supply of Ether is staked with validators compared to over 40% for most other proof-of-stake consensus-based blockchains like Solana (SOL), Cosmos (ATOM), and Avalanche ( AVAX), indicating room for growth.
With DeFi annual returns hovering around 1-3% for ETH on Aave and Yearn Finance and between 3-5% for stablecoins, LSD derivatives offer a 4% base rate with the opportunity to earn additional returns through the use of its liquidity in DeFi applications.
The Glassnode report said that LSD derivatives “have seen increased activity within different DeFi protocols, with Lido’s stETH being the most significant.”
In addition, LSD token holders are also showing a shift from providing liquidity on DEXs like Curve and Balancer to pursuing higher returns on lending protocols like Compound and Aave. Glassnode analysts wrote: “This leveraged stake position is estimated to amplify performance by 3x.”
The LSD sector seems to be the current hotspot for DeFi players looking to maximize their return.
Related: The rapid growth of DeFi-focused Ethereum liquid staking derivatives platforms surprises
Ether Price Analysis
ETH recorded a positive breakout of a bullish rising channel pattern with a target of $3,000 earlier this week. However, the trend was quickly reversed when Bitcoin (BTC) fell to $30,000 after expectations of a rate hike from the US Federal Reserve rose and sellers gained the upper hand.
Technically, the price can go two ways here, finding support at the base of the ascending triangle around $1,790 before breaking the $1,900 resistance level again. The other possible path is a continued slide towards the longer-term resistance and the support level of $1,700.
A breakdown below $1,700 would give sellers a turnaround to target the 200-day weekly moving average at around $1,575.
The ETH/BTC pair also shows that Ether has room for more downside towards the 200-day moving average at 0.0574 BTC and the long-term support and resistance level at 0.0538 BTC.
Ether had a failed positive breakout in early July, exposing the price to a further decline around $1,700. However, a rise in the LSD narrative with higher yields than the DeFi sector provides a cushion for any future declines, suggesting that the price will likely establish bullish support.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
