Ethereum Supply Crisis Looms: 40% Locked Tokens Could Ignite Massive Price Rally

 

Ethereum Supply Shock: Institutional Demand and Staking Squeeze Set Stage for Explosive Price Growth

Ethereum may be entering one of the most significant supply squeezes in its history, as institutional demand collides with shrinking liquidity across multiple fronts. According to prominent crypto analyst Crypto Gucci, over 40% of Ethereum’s total supply is now effectively out of circulation, creating unprecedented conditions for price acceleration.

Gucci noted that Ethereum has never before experienced a market cycle in which all three major “supply vacuums” — institutional accumulation, staking lock-ups, and treasury holdings — were active simultaneously. This rare convergence, he said, could lead to a dramatic price revaluation unlike anything seen in previous cycles.

“When demand meets a shrinking supply like this, price doesn’t just go up — it goes nuclear,” Gucci said in a post on Tuesday.

Institutional Demand Hits Record Levels

One of the defining features of this cycle is the sheer scale of institutional involvement. Digital asset treasuries, which barely existed during Ethereum’s last major bull run, have now accumulated 5.9 million ETH, valued at approximately $24 billion, or about 4.9% of the total circulating supply, according to data from StrategicEthReserve.

These treasuries — often managed by hedge funds, public companies, and asset management firms — are designed for long-term yield strategies. Their Ethereum holdings are typically locked away in cold storage or yield-bearing contracts, effectively removing large portions of ETH from active trading markets.

Gucci emphasized that this new layer of corporate ownership adds structural demand to the market that wasn’t present in 2021 or prior cycles. “Digital treasuries act as a permanent sinkhole for liquidity,” he said. “Once Ethereum moves into these reserves, it’s unlikely to return to circulation anytime soon.”

ETFs Drive the Second Major Supply Vacuum

A second powerful force comes from the surge in U.S.-based spot Ethereum exchange-traded funds (ETFs). These ETFs have accumulated 6.84 million ETH, worth about $28 billion, representing 5.6% of the total supply.

This accumulation is particularly noteworthy because Ethereum staking is not yet permitted within ETF structures. Analysts believe that once staking functionality is approved by regulators, ETF demand could rise sharply, as funds would be able to generate passive yield on their holdings.

“The fact that ETFs have absorbed this much ETH even without staking is a strong signal,” said independent market researcher Mina Carter. “Once staking approval comes through, the demand could double overnight. Institutional investors love yield, and Ethereum provides it natively.”

Staking: The Largest Supply Lockup in Ethereum’s History

The third — and most impactful — vacuum is Ethereum’s staking system. Following the 2022 Merge and the 2023 Shanghai upgrade, which completed Ethereum’s transition to proof-of-stake, investors have continued locking up ETH to secure the network and earn validator rewards.

As of mid-October 2025, more than 35.7 million ETH — equivalent to nearly 30% of the entire supply — is staked on the network, valued at approximately $146 billion. Most of this ETH remains illiquid, as validators face lengthy exit queues averaging 40 days before being able to withdraw.

This dynamic creates an effective bottleneck for liquidity. “Even if stakers wanted to sell, they couldn’t do so immediately,” explained Carter. “That creates a built-in throttle on supply entering the market.”

The Smallest Liquid Float in Ethereum’s History

Taken together, these three supply vacuums — treasuries, ETFs, and staking — have left Ethereum with its smallest liquid float ever recorded. With only a fraction of the total supply readily available for trading, even modest increases in demand could have an outsized effect on price.

“This is a textbook setup for a supply shock,” said Gucci. “When you have so much Ethereum locked up across long-term, illiquid holders and institutions bidding aggressively for what’s left, price discovery happens fast and violently.”

According to Ark Investments, publicly listed companies now collectively hold over 12% of all Ethereum in circulation. Among them is Tom Lee’s Bitmine, which recently purchased $834 million worth of Ethereum, bringing its total holdings to $12.52 billion — more than halfway toward its strategic goal of controlling 5% of all circulating ETH.

Forecasts Point to $8,000–$10,000 Ethereum

Entrepreneur and market strategist Ted Pillows believes Ethereum’s fair value during this cycle could reach between $8,000 and $10,000 per coin.

He argues that institutional buying, combined with potential ETF staking approval, could ignite a strong rally into the fourth quarter of 2025. “Ethereum has yet to price in the next wave of demand,” Pillows wrote in a recent investor note. “Once institutions can stake via ETFs, we’ll likely see an M2 liquidity catch-up that pushes Ethereum into five-digit territory.”

Market observers also point to Ethereum’s controlled issuance as another bullish factor. Since transitioning to proof-of-stake in 2022, Ethereum’s supply has increased by just 0.5%, compared to Bitcoin’s 4% growth over the same period, according to Ultrasound.Money.

This minimal inflation rate effectively makes Ethereum one of the most deflationary major digital assets, especially when factoring in the ongoing burn mechanism introduced through EIP-1559, which permanently removes a portion of transaction fees from circulation.

Could Nation-States Become the Next Buyers?

While institutional investors are driving today’s demand, analysts suggest that the next wave could come from nation-states building strategic crypto reserves.

This week, the Kingdom of Bhutan made headlines after announcing plans to integrate its national ID system onto the Ethereum blockchain. Although Bhutan has not yet disclosed any Ethereum holdings, its move into on-chain infrastructure could mark the beginning of broader state-level adoption.

“If sovereign entities begin to accumulate Ethereum as part of their digital reserve strategies, that could create a fourth supply vacuum,” said Gucci. “Nation-state adoption would fundamentally change Ethereum’s valuation floor.”

Ethereum’s Unique Position Among Layer-1 Competitors

Ethereum’s dominance in the decentralized finance (DeFi) ecosystem continues to give it a unique edge. Over 65% of all DeFi total value locked (TVL) resides on Ethereum-based protocols, according to DefiLlama.

Unlike many newer blockchains that rely heavily on inflationary token incentives to attract liquidity, Ethereum’s value proposition is built on sustainability and security. With major corporations, governments, and developers continuing to build on its network, Ethereum’s role as the foundational layer of Web3 appears more entrenched than ever.

Moreover, the rise of Layer-2 scaling solutions such as Arbitrum, Optimism, and Base has drastically improved Ethereum’s transaction throughput and reduced fees. These upgrades have strengthened Ethereum’s utility, attracting both institutional and retail users to its expanding ecosystem.

A Perfect Storm for Ethereum’s Next Chapter

All indicators point toward Ethereum entering a pivotal phase of its market evolution. Institutional accumulation is accelerating, long-term holders are tightening supply, and global integration of Ethereum-based infrastructure is expanding faster than ever.

The convergence of these factors — record ETF demand, massive staking lock-ups, growing corporate treasuries, and early hints of government adoption — creates what analysts describe as a “perfect storm” for Ethereum’s valuation.

“Ethereum’s next move could redefine what a blue-chip digital asset looks like,” said Pillows. “It’s no longer just a smart contract platform — it’s becoming a global financial backbone.”

If history is any guide, supply shocks in crypto markets tend to resolve through aggressive price discovery. And with Ethereum now facing the tightest supply conditions in its history, the next major rally may be closer than many realize.

Source: CoinMarketCap

Writer @Ellena

Erlin is an experienced crypto writer who loves to explore the intersection of blockchain technology and financial markets. She regularly provides insights into the latest trends and innovations in the digital currency space.

 

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