Steep Decline in Ether Balance on Exchanges: Analysis and Outlook

Detailed analysis of the Ether balance decline on cryptocurrency exchanges and its possible implications for Ether volatility and price.

The balance of Ether, Ethereum’s native token, on cryptocurrency exchanges, has experienced a significant drop, reaching a low not seen since April 2018. This decline has generated growing interest in the crypto market, as it could have important implications. for the volatility and price of Ether.

In 2018, the crypto market went through a harsh winter, characterized by a loss of investor motivation after a major crash. Today, the balance of Ether on exchanges appears to be following a similar trend. The decline in the balance of Ether, the second most important coin in terms of capitalization after Bitcoin, has been constant for several months, beginning in September 2022 and becoming more pronounced in November and December.

Currently, the amount of ETH on cryptocurrency trading platforms has dropped to 17.86 million ethers, marking the most drastic decline in the last 5 years.

Implications of Ether Balance Decline on Exchanges

As the Ether balance trend on exchanges continues to decline, concern among investors is intensifying. A low balance sheet can lead to a slump in liquidity and a significant increase in currency volatility.

According to data from Glassnode, as of Thursday, only 14.85% of all ether was stored in exchange wallets, as compared to 25-26% supply held during the 2021 bull run. Although this situation can increase volatility, it cannot be lightly dismissed as a negative. In fact, it does not mean that investors have lost interest in Ether, quite the opposite.

The scarcity of coins available on buying and selling platforms is largely due to staking. Investors are placing their coins with validators to earn interest, which is causing acute shortages. In the short term, this situation could lead to an increase in the price of Ether. The FTX collapse is a factor that prompted many to move their crypto assets from exchange wallets to self-custodial wallets; the second, and most important, is the Shapella update.

The scarcity of a cryptocurrency is often interpreted as a bullish sign, as there is a limited supply for a market that could start demanding more at any moment. If interest in the crypto market increases, the price of Ether could experience a strong boost due to the low balance available on exchanges.

Magnitude of the ETH Shortage

The movement of assets off exchanges is considered a bullish sign, indicating that users are not looking to sell at the current price. In the case of Ethereum, re-locking ETH is the most obvious reason for the decline in supply on exchanges.

Major cryptocurrency exchanges such as Binance, Bitfinex, Kraken, and others that supported the Shapella upgrade saw a significant withdrawal of ETH from their wallets, leading to a decline in the current balance.

As with Ether, Bitcoin exchange balances have also fallen sharply to 5-year lows. Some experts argue that staking held for unacceptably long periods of time and falling coin prices are behind the under balance.

However, it seems that investors are leaning towards holding their ethers for the long term, preferring to long-stake Ether rather than liquidate it on exchanges. In summary, the fall in the availability of ethers is a complex issue that can have multiple causes and implications for investors.

By Audy Castaneda