- Only 15% of ETH is on exchanges, lowest number in 5 years
- The decline has intensified since staking opened in late 2020
- Bitcoin and stablecoins have also fled exchanges, meaning liquidity is thin.
- Volatility has increased as a result, with aggressive moves to the downside possible for the market as a whole despite a bullish Q1
Ethereum The years have been eventful.
Obviously, it was violently tossed along with the rest of the crypto market. Bouncing around the $100 or $200 level for much of 2018 to 2020, it made a sudden upward move during the pandemic, reaching near $5,0000 in late 2021 before falling below $1,000.
running away from crypto exchange
While price is something to talk about with most crypto projects, I don’t want to focus on that here. Let’s look at the supply of ETH on the market.
I published a Detailed analysis Given how capital has largely fled crypto markets recently, with 45% of stablecoin balances on exchanges in the last four months, total balances are now the lowest since October 2021.
This pattern is being followed with cryptocurrencies across the board. bitcoin is close 11.8% of its supply On exchanges, the lowest since the top of the bull market five years ago. Looking at Ethereum, the supply on exchanges has dropped sharply, now at 18.1 million ETH, the lowest it has been in 5 years.
Or, looking at the percentage of total supply, there is only 15% of ETH on exchanges now.
Ethereum Staking Could Change All This
With Ethereum, however, there is an elephant in the room. Namely, the ETH staking contract that was opened in November 2020. This allowed users to lock up their ETH in anticipation of the merge, the transition to Ethereum’s proof-of-stake network, which finally went live last September.
Stakers only got access to their tokens last week, however, after the Shanghai upgrade went live. And when you plot the amount of ETH locked in staking contracts versus ETH on exchanges, it’s a clear factor.
However, that ETH is now live again. Or at least, the stakeholders can choose to withdraw it if they so desire. Initial diagnosis is that there has been no additional selling pressure with ETH leading the crypto market After Shanghai and surpassing the $2,000 barrier for the first time since May 2022, the month in which the infamous UST collapsed and sent the crypto market into a tailspin.
Volatility is increasing due to lack of supply
The thin volume of ETH on exchanges, in addition to the sparse amount of bitcoin and stable coins, is driving crypto volatility high.
This is part of the reason the market has rallied so much in the first quarter of the year. A more optimistic forecast on the Federal Reserve’s interest policy provided impetus, and with so little capital in the market it has not been hard to move price.
At the end of the day, price is simply a bid that finds an ask. And with very few bids and asks out there, it’s easy to see why prices are so sensitive.
It’s tempting to conclude that stingy supply is bullish for holders of these coins (and in the short term, while the market is rising, it is – as we’ve seen prices move so easily recently). But on a bigger picture, this is not a good thing.
First, the opposite is also true – thin liquidity moves to the downside as well as to the upside, so if the market turns, there is little to exert selling pressure, meaning that the last few The bounce we’ve seen in months could make a reversal easier than usual.
But overall, crypto needs liquidity. The asset class aims to establish itself as a prestigious branch of the financial economy. It needs a liquid market to buy and sell, and capital moving out of the space is not a good thing.