DeFi and Long-Term Holders Keep ETH from Dropping Below $1,700

Divya  |  Jun 25, 2021

Long-term investors in ETH are largely unfazed by the recent decline in prices, while developments in the decentralized finance(DeFi) sector open more opportunities for the currency’s appreciation.

As per a new report from Glassnode, several long-haul ETH holders -- those who’ve held the asset for more than 155 days -- continue to sit quietly on their profits despite the steep 55% drop in the second-largest currency’s value.

ETH Long-term Investors Refuse to Liquidate Their Holdings

In its report, Glassnode suggested that compared to short-term holders, who are more likely to liquidate their ETH holdings due to losses, long-term holders remain in profit, with their paper gains equivalent to 80% of the market cap.

The blockchain analytics firm has leveraged the net unrealized profit/loss (NUPL) indicator to determine the intentions of long-term holders. NUPL compares unrealized profits with unrealized losses to conclude if a network is operating in a profitable state or not.

Through its analysis of long-term holders’ net unrealized profits-losses(LTH-NUPL) indicator, Glassnode has determined that long-haul investors are fine with embracing the risk of a downturn in the Ether market.

DeFi to Boost Ether’s Value and Prevent Downgrade

Previous LTH-NUPL readings recorded in 2017-2018 saw the indicator surge above 1 as Ether prices skyrocketed by 20,217%. However, the currency’s gigantic step to the north was followed by an equally sharp sell-off, wherein ETH/USD shed 95% off of its gains.

Back then, even long-haul investors withdrew their bets after their profits vanished in thin air. Then again, ETH holders at that point did not have access to a burgeoning DeFi sector that could help them generate annual yields on their holdings. In this context, Glassnode wrote:

“Unlike previous times of capitulation, many of these long-term holders can now deploy their assets in DeFi. ETH is widely deposited in lending protocols like Aave and Compound, where it currently sees over $4B outstanding deposits.”

Presently, the market has an array of DeFi platforms where ETH holders could stake their assets to borrow stablecoins, which allow them to collect great risk-off yields or wager on token prices.

According to the data provided by Glassnode, most DeFi platforms have solid liquidity, amounting to nearly $100 billion. This factor coupled with long-haul investors’ refusal to liquidate their ETH assets can help the currency prevent history from  2018 repeating itself in 2021.

More Than 100K ETH Staked In Ethereum 2.0 In Last 24 Hours

Data released by CryptoQuant as of yesterday revealed that more than 100K ETH were staked in the upcoming Ethereum 2.0 upgrade within the last 24 hours. The amount represents a fiat value of over $200 million as per Ether’s current prices.

With the latest staking, the combined value of ETH locked in the Eth2 contract has exceeded 5% of the cryptocurrency’s overall supply in circulation.

At the beginning of June, the total number of tokens staked on Ethereum 2.0 surpassed the value of 5.2 million ETH, which was equivalent to a staggering $14 billion at the time.

Ethereum Community Is Positive About 2.0 Upgrade

Designed to address issues of scalability and high gas fees, the Ethereum 2.0 upgrade required a minimum of 524,000 ETH to continue with the staking process. However, the response from the Ethereum community has been overwhelming, with more than 5.88 million ETH staked in the deposit contract and 174,318 validators on board at the time of writing. 

Eth2 will introduce sharding to the network, which will ensure that Ethereum uses parallel processing to divide data verification tasks among various sets of nodes, with each node working only on the data that it has been assigned. 

While sharding is a layer-1 scaling solution being integrated into ETH 2.0, Vitalik Buterin, the co-founder of Ethereum, has assured that his team is finishing work on a layer-2 solution that would make the system 100X more scalable and robust

More importantly, Ethereum will shift to a consensus mechanism called Proof-of-Stake, which compared to the energy-intensive Proof-of-Work, is more efficient and eco-friendly.

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