Ethereum ETFs can cause ETH supply problems.

The new approval spot could create a supply crunch for Ethereum exchange-traded funds (ETFs), the second-largest cryptocurrency by market capitalization.

Ethereum supply on the central exchange has hit an eight-year low, with only 12.78 million ETH available. This amount accounts for 11 percent of the total supply.

Ethereum demand shock expected

Analysts have noted that investors are pulling ETH out of exchanges as the asset is set to increase institutional demand. Such a decline in the balance of exchange is often a sign of brutality. It suggests that investors expect price growth and have no plans to short sell their holdings.

This week, the US Securities and Exchange Commission (SEC) approved several Ethereum ATMs, which many believe could boost demand for the cryptocurrency.

Alluvial CEO Mara Schmid points to the significant institutional interest generated by spot bitcoin ETFs since their launch in January. These ETFs now hold 800,000 BTC, indicating growing institutional appetite. As a result, Ethereum is predicted to see similar demand, which could lead to a huge demand shock.

“What happens if $20 billion comes out of the market? It can be an important point in terms of supply and demand. “We've never seen such a rapid demand shock in the market before,” Schmidt said.

Read more: How to invest in Ethereum ETFs?

In particular, ETH is experiencing significant growth in institutional activity. Blockchain analytics platform IntoTheBlock reports that speculation surrounding the approval of the Ethereum ETF has pushed the volume of transactions on the chain to a two-year high of $15.98 billion, largely driven by crypto whales.

Of the $15.98 billion, $14.33 billion came from transactions over $100,000, mostly whales. This accounts for 90% of the total trading volume of the day.

IntoTheBlock explained that the approval of ETH ETFs marks a major milestone in cryptocurrency adoption. As seen in recent high-volume transactions, this move continues to likely increase the activity of ETH whales.

The dynamic landscape, emphasized by on-chain trading volumes, reflects growing institutional and investor confidence in Ethereum. This trend is set to gain momentum that could lead to higher market activity,” added Into Zeblock.