Ethereum’s flirting with $3,000 once more, and the crypto-sphere is abuzz with talk of a coming “supply crunch.” Now we can’t escape headlines about ETFs, staking and predictions of a moonshot to $10,000. Breathe easy, before you remortgage your house and dive headfirst into ETH let’s just pump the breaks a little. It’s high time to inject a little realism into this debate. Is this supply crunch narrative a legitimate basis for investment, or another house of cards propped up by hype?

ETF Inflows: Demand Driver or Hype Amplifier?

Indeed, the floodgates for inflows have opened to ETFs with Ethereum in their names. Only yesterday, July 10th, a single day record of $386 million came in, bringing the cumulative total to over $5.31 billion. That’s a lot of money. Let's think for a second. These are new products. Of course, they'll see initial interest. Picture it as the opening weekend of a major blockbuster. The whole world flocks to it, which is wonderful, but does that ensure success for the long haul?

The real question is sustainability. Can we expect these inflows to keep going at this rate? Or will this euphoria quickly dissolve, enabling ETH price to succumb to bearish market forces? Do keep in mind that ETFs can experience outflows as easily as inflows. All good until the market crashes and investors get jittery. Creating conditions to foment a panic exit could wipe out any supply squeeze that’s thought to be a benefit.

The stock market has its own unique set of dynamics, and ETH is now getting sucked into those dynamics.

Staking: Locked Up or Ready to Dump?

Yet, the argument continues to assert that 30% of the circulating ETH supply is locked in staking. This lower supply is pushing the price up. Makes sense on paper. But what’s anyone to do when that staked ETH eventually needs to be unstaked?

Think about it. But early adopters who’ve been staking their ETH for years are reaping huge rewards. At some point, they’ll want to cash out on those gains. Unlocking a large part of that 35 million ETH would flood the market and undermine any positive supply shortage created by The Merge. It's basic supply and demand.

After all, considering average yields between 2.9% APY and 3.4% APY, is that investment attractive enough? As rates and inflation keep climbing, stakers could soon be experiencing this type of concern. Those returns are likely insufficient to keep them invested for the long term.

Regulation: The Elephant in the Blockchain

The SEC’s approval of spot ETH ETFs without staking is the definition of regulatory arbitrary and capricious behavior. It’s the equivalent of constructing a home on a fault line. You may have won playground equity with a stunning piece of civic architecture, but the earth’s tectonic plates could leave your community in the lurch.

The SEC seems unwilling to allow for staking in ETFs. They are concerned that on-chain staking could be viewed as an unregistered investment contract. This is a new and real concern, and it points to the regulatory tightrope that Ethereum and other proof-of-stake cryptos have to straddle.

What would happen if the SEC chooses to eliminate staking across the board? What if they decide that’s a security offering? This would be hugely detrimental to the Ethereum ecosystem and crash prices.

If the SEC approves staking for ETH ETFs, Eric Jackson's prediction of $10,000 might seem a bit more plausible. There are no guarantees.

Regulation is the wild card that would beyond a shadow of a doubt solve the whole supply crunch narrative.

Unexpected Connections: Beanie Babies and Digital Gold

Let's be honest. We all know the crypto market can often seem like one big Beanie Baby trade. Remember those? Each of them thought they were going to make their fortune. Then the market imploded, leaving speculators with plush toys coming out their ears.

Scarcity generates a sense urgency and can raise prices dramatically in a short period of time. That doesn’t supplant real world value or usefulness. Ethereum does need to provide some confidence that it’s more than a speculative bubble. It must prove its worth as the global platform for decentralized applications, finance, and countless other creative use cases.

Think of it this way: Gold has value because it's used in jewelry, electronics, and as a store of value. Ethereum has to deliver their versions of those use cases. Without it, we risk AR finding its place on the shelf next to Beanie Babies – a passing craze that very quickly ghosts us.

The ‘supply crunch’ makes for one hell of a story, but it’s a terrible investment thesis. Educate yourself, understand your level of risk, and avoid the frenzy.