Ether withdrawals on exchanges are at a four-year low. Bad signal? Not necessarily.
The fact that the cryptocurrency market is moving sideways after the November rally does not hide the remarkable development in 2021. Since the beginning of the year, the total market capitalization has more than tripled, the value of ether even increased. has quintupled. However, for the moment at least, the hunger for ether seems to have been satisfied. Currency deductions fell to a four-year low in December, Glassnode data shows.
At first glance, a dramatic development, the stock market retreat is ultimately a reliable indicator of high or low demand. The less ethers migrate from trading venues, the lower the price expectations. But the devil is in the details.
Stock markets continue to decline
A very banal reason for the decline: the rise in prices. If the value of the ether increases, a lower percentage of ethers will be deducted from the exchanges despite the same trade volume. Another reason could be the shift from stocks to cold wallets. Last but not least, and probably also due to major attacks on the stock market, investors are now more aware of their own custodial solutions.
Viewed in isolation, the minimum of four years can be derived from supersaturation of the ether. However, the deciding factor is the ratio of inflows to outflows, that is, the currencies transferred to and from exchanges. Their ratio determines the amount of supply available. As the Glassnode chart shows, price increases correlate with a preponderance of deductions, while bag sales increase supply and therefore depress price. Entries currently dominate the course.
However, this is more of a snapshot than an ongoing trend. A look at stocks on the exchanges shows that the amount of ether in the hands of trading venues continues to decline. At the beginning of the year there were still 18.9 million ETH, while the shares have melted to a total of 14.3 million ETH.
Ethereum and its “killers”
Even if the year’s low in currency outflows is explained by the background of price developments, generally declining supply, independent custodial solutions, and a currently sluggish market situation: Ethereum is vying for market share as hardly any other cryptocurrency. The smart contract pioneer is about to explode, reflected in consistently high transaction fees.
It is true that Ethereum relies on its network effects. At over 3,800, Ethereum has by far the most decentralized applications (dApps). And the total value locked in DeFi apps is also unrivaled at more than $ 157 billion. But more and more cryptocurrencies and platforms are assembling Ethereum’s throne. Solana, Cardano, Polkadot, Avalanche – the list of “Ethereum killers” is getting longer and more threatening. If Ethereum doesn’t want to jeopardize its leadership, the move to Ethereum 2.0 should go smoothly in the new year.