Ethereum's Supply Squeeze and Institutional Accumulation: A Catalyst for Outsize Price Growth?

Ethereum's post-Merge transformation has redefined its supply dynamics, creating a unique interplay between reduced issuance, institutional demand, and structural constraints. As the blockchain transitions from a speculative asset to a foundational infrastructure layer, the question arises: Can these forces catalyze outsize price growth?

Structural Supply Dynamics: From Deflation to Mild Inflation

Ethereum's annual issuance plummeted by ~90% post-Merge, from 4.9 million ETH to 972,000 ETH in 2022. This, combined with EIP-1559's burn mechanism, initially created net deflation during high network activity. However, the Dencun and Fusaka upgrades in 2024 reduced Layer 1 gas fees and burn rates, shifting Ethereum into a mild inflationary regime. By November 2025, monthly net issuance stabilized at ~70,000 ETH, driven by low on-chain activity and migration to Layer 2 solutions. While this marks an improvement over pre-Merge conditions, Ethereum's supply dynamics remain contingent on network usage and regulatory developments.

Institutional Adoption: A Supply-Side Revolution

Institutional demand has emerged as a dominant force. Over 40% of Ethereum's supply is now locked in staking, ETFs, or corporate treasuries. BitMine, led by Tom Lee, has accumulated 3–3.2% of circulating ETH, with ambitions to reach 5%. This aggressive accumulation, alongside ETF inflows, has slashed exchange liquidity to 8.7%–8.9% of total supply. Corporate entities and ETFs collectively hold 10 million ETH ($46.22 billion), treating Ethereum as a yield-bearing asset. The Ethereum exchange supply ratio (ESR) has hit 0.137, the lowest since 2016, signaling reduced short-term selling pressure.

The Supply Squeeze: A Double-Edged Sword

The convergence of reduced issuance and institutional demand has created a structural supply squeeze. Monthly net issuance (70,000 ETH) is dwarfed by ETF inflows and corporate purchases, which have outpaced new ETH creation in key periods. This scarcity mirrors Bitcoin's 2017 bull run, where institutional accumulation drove price discovery. However, the concentration of supply among a few large holders introduces volatility and regulatory risks. BitMine's growing influence over staking and governance, for instance, raises concerns about centralization.

Price Volatility and Long-Term Value

Ethereum's price has exhibited sharp swings in 2025, surging 48.73% in July before correcting 32% to $3,400. This volatility is partly attributable to macroeconomic factors, including Federal Reserve rate cuts and a weakening U.S. dollar, which benefit risk-on assets according to Glassnode insights. Ethereum's correlation with Bitcoin remains strong, but its dual role as both an investment and infrastructure asset offers unique tailwinds. Regulatory clarity, such as the SEC's approval of Ethereum ETFs and its non-security designation, has further solidified institutional confidence.

The Bull Case: Infrastructure, Tokenization, and Upgrades

Ethereum's dominance in DeFi and tokenization strengthens its long-term value proposition. It hosts 65% of DeFi TVL and 50% of stablecoin balances. Upcoming upgrades like Fusaka aim to enhance data availability and scalability, reinforcing Ethereum's position as the go-to platform for decentralized finance and tokenized assets. Staking yields exceeding 4% and Layer-2 scalability improvements have also bolstered on-chain activity, with validator resilience and stable staking volumes indicating confidence in Ethereum's future.

Conclusion: A Catalyst for Growth

Ethereum's supply squeeze and institutional adoption are not merely short-term phenomena but structural shifts with profound implications. While volatility persists, the interplay of reduced issuance, regulatory clarity, and ecosystem growth creates a compelling case for long-term appreciation. As institutional demand continues to outpace supply, Ethereum may well replicate Bitcoin's 2017 trajectory-transforming scarcity into outsized value.