Ethereum Surges 40% Post-Pectra Upgrade, Boosting Trading Volume and Deflation
Ethereum's price has surged by nearly 40% in the past week, outperforming BTC, following its largest upgrade to date, Pectra. This has led to a significant increase in trading volume and a shift in funding rates, resulting in liquidations on major exchanges like OKX and Bybit.
The Ethereum rally was bolstered by improving investor sentiment, driven by the UK-US trade deal and China-US ceasefire. Pectra has revived Ethereum's deflationary narrative, with circulating supply declining by 0.1% since early May. The upgrade includes raising the validator cap and enabling partial withdrawals, enhancing capital efficiency and liquidity.
On May 7, ETH daily trading volume on centralized exchanges (CEXs) reached $40 billion, the second-highest level this year. This surge in activity was accompanied by a flip in ETH funding rates from negative to positive, leading to liquidations on OKX and Bybit. Meanwhile, Bybit's BTC liquidity fully recovered to pre-hack levels within 30 days of the February hack.
Pectra's enhancements, led by Blockdaemon and StakeWise, include improved validator capital efficiency and auto-compounding mechanisms. Furthermore, EIP-7702 allows standard wallets to tap into smart contract capabilities without owning ETH to pay transaction fees.
In the broader market, Bitcoin has stood out as a rare diversifier amid recent volatility, with low correlations to U.S. tech stocks, bonds, and the dollar. Additionally, the Kaiko Tokenization Index offers better risk-adjusted returns compared to the AI Index, with a Sharpe ratio of around 0.9.
Ethereum's price surge and increased trading volume following the Pectra upgrade signal a growing interest and confidence in the cryptocurrency. The upgrade's deflationary impact and improved capital efficiency have contributed to this rally. Meanwhile, Bitcoin's low correlations to traditional assets highlight its potential as a diversifier in volatile markets.
