With the recent Ethereum surge in value that has been accompanied by several record prices, the asset’s balance on exchanges is plunging, driven by various factors.
The Ethereum balance held on central exchanges has hit a record three-year low standing at 14,042,589.584 ETH, on-chain data provided by Glassnode indicates.
The data also shows that the balance that has been declining steadly with December 4, 2021, registered the previous three-year low of 14,059,101.985 ETH.
Implication of Ethereum low exchange balance
A low balance of ETH on exchanges can be considered a bullish sentiment for the markets. The withdrawals are known to drive a reduction in supply relative to demand on popular crypto trading platforms.
Furthermore, the ongoing network upgrades also affect the second-ranked cryptocurrency’s supply and demand. For instance, the London upgrade introduced a burn mechanism into Ethereum’s fee market, creating increased deflationary pressure on the token’s supply dynamics.
Dropping exchange balances also suggests that long-term investors are moving their assets into secure storage or locking their funds up to earn yields through decentralized finance protocols or staking. Most centralized exchange wallets are considered risky and prone to hacks. Notably, Ethereum is undergoing upgrades that will introduce staking capabilities in the network.
The security of central exchange recently came under focus after BitMart crypto exchange lost about $196 million in a hack.
Elsewhere, investors might be looking forward to increasing value of the asset, with some market analysts suggesting that Ethereum has the potential of surpassing Bitcoin.
The declining balance of Ether on exchanges also coincides with the increase of Ethereum locked in smart contracts. The smart contract has been driving the growth of the decentralized finance (DeFi) sector.
The rise in DeFi has allowed for alternatives to centralized exchanges alongside new ways to interact with the cryptocurrency ecosystem, such as lending and yield farming. Therefore, as the asset grows, it will stay longer in the Ether ecosystem instead of exchanges.