Uniswap Liquidity Providers are doubling down on their capital utilization.
Their role in the ecosystem might create a unique upside for Ethereum in the near term.

Some Uniswap (UNI) investors have been taking some bullish actions in recent times including utilizing their capital under Liquidity Provision settings. This action by many metrics suggests they are confident about the price action of the second largest cryptocurrency by market capitalization Ethereum (ETH) upon which the protocol is built. 

In the meantime, it is unclear how this capital deployment in Liquidity Pools would trigger ETH movement, but the potential for upside remains high at this time.

According to on-chain data provider Glassnode, the highest concentration of liquidity in the Uniswap pool is approximately 30.4% of capital which is located within an 11% price range. Glassnode stated on the X app that about +8.6% of the liquidity was injected in periods of market upside, while -2.7% preferred the downtrend. A close look at a second tier of liquidity provision trends suggests a more bullish move than the first.

The second-tier liquidity pool is positioned with a -8.5% buffer to the downside and a +23.7% buffer to the upside. There have been previous reports that Ethereum could face capitulation at some point and current data suggests this inflection point might be close. From the current look of things, some on-chain metrics could prove this sentiment, including the ETH futures and options volume which was $8.3 billion at the start of the week.

Usually, the volume of an asset and its open interest are indicators of the liquidity and activity of options and futures contracts. Hence, whenever there is an increase in the metric, it automatically connotes a rise in interest in the asset. Sometimes, this may even be a measure of strength. The reverse is the case when the futures and options volume plummets. 

Uniswap Boost Complement: the Grayscale Factor

Noteworthy, Glassnode highlighted that the previously stated value is the highest that Ethereum has reached since the Shanghai Upgrade some months back. The average derivative volume of the coin shows a deep belief that the price action of Ethereum may tilt more toward the upside. 

“Given there has been no significant shift in trade volumes for either market in August, it suggests that traders are continuing to move liquidity higher up the risk curve,” Glassnode stated in its recent analysis.

The ETH options put vs. call volume is another core metric that backs a positive momentum in the actions of Uniswap LPs. Following Grayscale’s win in court against the United States Securities and Exchange Commission (SEC) over its application to convert its Grayscale Bitcoin Trust (GBTC) to an Exchange Traded Fund (ETF), the options vs. call volume has soared considerably. 

The latest fluctuation suggests that LPs were busy injecting capital into ETH contracts to prop up their rewards and by extension, the Ethereum protocol. The liquidity concentration and distribution have demonstrated that there was short-term volatility which has acted as a key motivator of Uniswap’s liquidity pool distribution. It is therefore necessary that the USDC/ETH Uniswap pool is checked constantly.

At the time of this writing, Ethereum is trading at $1,625.09, down by 0.10% in the past 24 hours, a price trend that current liquidity pool metrics can help revitalize.

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Filed under: Bitcoin - @ September 10, 2023 5:21 am