The balance of Ether (ETH) held across all crypto exchanges plummeted to a five-year low on May 26, 2023, bringing the total amount of Ether kept on exchanges to a mere 17.86 million. This unprecedented decline in the exchange supply of ETH has not been observed since April 2018, marking a significant shift in the crypto market dynamics.
According to data from the on-chain market analysis firm Glassnode, a mere 14.85% of the total Ether supply is currently held on centralized exchanges. This contrasts sharply with the 25-26% of the total supply held during the 2021 bull run.
Sudden ETH Balance Decline
The plunge in ETH supply on exchanges began in September 2022, and nosedived further after the FTX crisis in November of the same year. Aside from the exchange balance decline, Ethereum wallet addresses holding more than 100 ETH have also hit a six-month low, indicating a broader trend of ETH moving away from exchanges.
Influence of FTX Crisis and Shapella Upgrade
Two major events seem to have contributed to this substantial decline in ETH balances on centralized exchanges in recent history. The first was the downfall of the FTX crypto exchange, which prompted many holders to migrate their crypto assets from exchange wallets to self-custody wallets due to fears about the security and stability of centralized exchanges.
The second, and perhaps the most significant event, was the implementation of the Shapella upgrade. This development paved the way for thousands of validators to withdraw their staked ETH. Interestingly, contrary to popular belief, only a small percentage of validators opted to unstake, while the majority decided to withdraw only their staking rewards.
Emergence of Self-Custody Wallets
The exodus from exchanges to self-custody wallets represents a significant shift in the dynamics of the Ethereum ecosystem. It indicates an increasing preference for greater control and security over funds, likely spurred on by the FTX incident.
Re-staking ETH After Shapella
This mass movement of assets away from exchanges is generally perceived as a bullish sign in the crypto market, suggesting that traders are not looking to sell at the current price. In Ethereum’s case, the decision to re-stake ETH rather than sell appears to be the primary driving factor behind the declining exchange supply.
Implications for Major Crypto Exchanges
In the week following the Shapella upgrade, the amount of ETH being staked actually surpassed the amount being withdrawn. Another report from Glassnode estimated that less than 1% of staked ETH was expected to be sold. This suggests that a significant portion of the ETH moving away from centralized exchanges is actually returning to staking, reaffirming a bullish sentiment for Ethereum.
Ethereum’s supply movement offers an intriguing insight into the shifting dynamics of the cryptocurrency market. While the fall in ETH balance on exchanges has been influenced by significant market events, it also reflects a larger trend towards self-custody and staking within the Ethereum community.