Is Ethereum supply imbalanced? Analyst spots serious flow problem

  • Analyst, Andrew Kang observed that institutions that were heavily hit in the LUNA crash have to reduce their positions in Ethereum to cover their loss.
  • According to him, cryptos would decorrelate on the downside of equities.

Ethereum, the second-largest crypto by market cap is currently trading at $1903, a 61 percent fall from its near $4,900 all-time high. As its current trading price is found to be heavily undervalued considering the projects implemented on its blockchain, an analyst has spotted a serious flow problem with Ethereum’s supply. 

In his post, Andrew Kang, co-founder, and partner of VC heavyweight Mechanism Capital indicated two categories of people who are ready to buy or sell Ethereum right now. According to him, there is only one category of market participants ready to increase their Ethereum allocation as of the end of May. This, he believes, signifies a serious flow imbalance. 

Ethereum buyers

He observed that those buying Ethereum are short-term scalpers as a result of round numbers, fading sentiments, etc. He also disclosed that no one else is buying Ethereum because other enthusiasts already spent their dip money on the previous 1,000 dips. However, the number of people in the “selling category” far outweighs those in the “buying category”.

The sellers

Firstly, it was observed that institutions that were heavily hit in the LUNA crash had to reduce their positions in Ethereum to cover their loss. The mass-selling is also triggered as they have to reduce risk or get net outflows from “LP redemption”. Kang has also observed that the market opportunities of Ethereum have been below expectations, coupled with fundamental deterioration which includes network activities, fees, etc. Also, those selling include retailers who exit their position when the price went down drastically, and “are bleeding from multiple directions”. 

The list includes people who wanted to sell earlier but were waiting for a rebound, short-sellers, miners, and project treasuries. Project treasuries are actively selling because they observed many projects have had poor “runaway planning” and also kept a bulk of their proceeds in ETH. He also mentioned that cryptos would decorrelate on the downside from equities.

I don’t care that equities are bouncing and correlation has been high. Crypto will unfortunately decorrelate on the downside. The difference is that equities have strong structural buying flows and crypto’s structural flows are weak.

The Ethereum supply imbalance as disclosed by Kang signifies that the price could be dragged down even more. However, market forecaster Jim Bianco foresees a positive price movement for Ethereum in the future. 

Some of these coins like ethereum are going to be a lot higher way down the road. But you’re going to have to stomach through much more of what we saw in the last week coming in the next several months or a year or so.