ETH on Exchanges Hits 5-Year Low as Capital Flee Crypto
Overview
• Ethereum has seen a sharp drop in the amount of ETH on exchanges, with only 15% of its supply now available for trading.
• This is the lowest number in 5 years and is largely attributed to Ethereum staking contracts opened up late last year.
• Bitcoin and stablecoins have also seen significant amounts of capital leave exchanges, leading to liquidity concerns and higher volatility.
Ethereum Exchange Supply at 5-Year Low
Ethereum has had an eventful few years since 2018 when it bounced around between the $100 or $200 levels. The price suddenly surged during the pandemic, peaking near $5,000 in late 2021 before crashing back down below $1,000. Now only 15% of ETH is on exchanges, the lowest number in 5 years with many traders moving their tokens into staking contracts to take advantage of the Merge transition to a proof-of-stake network which went live last September.
Capital Fleeing Crypto Markets
The trend of capital fleeing crypto markets isn’t limited to Ethereum alone; Bitcoin has also seen a dramatic drop in exchange supply with only 11.8% of its total supply available for trading – the lowest since the bull market top five years ago. The same can be said for stablecoins as 45% of their balance on exchanges exited over the past four months resulting in thin liquidity across all crypto markets and increased market volatility.
Staking Contracts Account For Drop
Analysts believe that much of Ethereum’s decline can be attributed to staking contracts which were opened up in November 2020 allowing users to lock up their ETH Tokens until they were given access again last week as part of Shanghai upgrade going live. As such it appears that capital leaving exchanges is being stored away in these staking contracts instead leading to an overall decrease in liquidity and higher market volatility as a result.
Conclusion
As cryptocurrencies remain volatile assets there will always be concerns about liquidity levels, however this recent exodus from exchanges provides insight into how investors are taking advantage of new features such as staking contracts and could lead to some interesting developments for blockchain networks like Ethereum going forward.
