Ethereum and Bitcoin Exchange Supplies Hit Historic Lows as On-Chain Confidence Grows

For the first time in its history of more than a decade, Ethereum has seen the portion of its supply maintained on centralized exchanges dip under 4.9%.

Bitcoin isn’t too far behind, with only 7.1% of its total supply now residing on exchanges, the lowest it’s been since November 2018. These numbers were recently reported by the analytics firm Glassnode, and while they don’t necessarily forecast future price movements, they do suggest something about the kind of market we’re in. Unprecedented figures like these are strong indicators of rising long-term conviction among holders of the two largest cryptocurrencies.

When you combine increasing money coming into the market, network improvements, and a generally favorable atmosphere for ETFs, the data paints a picture in which the underpinnings of both Ethereum and Bitcoin look stronger than ever—even if the market is still acting somewhat shell-shocked in the short term.

Since the eagerly awaited Pectra upgrade was rolled out, the on-chain valuation of Ethereum has been moving noticeably upward. The total capital in the Ethereum network, as reflected by its Realized Cap, has been increasing. When I checked the Realized Cap on May 19, it was $244.6 billion. Just 12 days earlier, on May 7, the Realized Cap was $240.8 billion. So the on-chain valuation increased—and pretty clearly—broke a downtrend that had been in place since early February.

The Pectra upgrade, with its network efficiency, user accessibility, and scalability optimizations, seems to have brought a renewed air of confidence among investors. Compared to market capitalization, Realized Cap often appears to be a more stable and sensible way of measuring a network’s value, mainly because it adjudges the value of coins in use and tends to filter out the short-term price noise that makes a lot of people uncomfortable.

This renewed on-chain capital injection indicates that Ethereum’s usefulness and demand are growing since the network upgrade. When we put this alongside dwindling exchange balances, it paints an even clearer picture: in ever-increasing numbers, users appear to be storing their ETH somewhere other than on exchanges. It remains to be seen whether they’re doing this mostly for staking, as a not-so-short-term investment, or to read the casual Friday morning bestsellers list on dApps.

In the last five years, the number of Bitcoins stored on centralized platforms has drastically reduced. In fact, 1.7 million less BTC now inhabit these trading platforms, according to Glassnode. That may not sound like much—almost 9 billion worth of BTC sit on these trading platforms today. But what was once a BTC supply of 17.3 billion, back in April 2020, has plummeted by almost 50 percent. Similarly, Ethereum is seeing a large supply downturn on centralized exchange trading platforms.

For active traders, keeping crypto assets on exchanges has for some time now been a convenient arrangement. But the basic vulnerabilities of exchanges—security breaches, regulatory scrutiny, and centralized control—have led many users to move toward private wallets and cold storage. This migration has accelerated since 2019, following some spectacular exchange implosions, and a general trend toward more robust, user-friendly non-custodial alternatives.

When more coins go off exchanges, the available supply for immediate sale or trading diminishes, tightens liquidity, and could reduce volatility in the long run. It could also serve as a bullish signal for market participants because it reduces the selling pressure that might have been partially to blame for the recent slide.

This behavior also corresponds with the increasing embrace of Ethereum staking, in which users stake their ETH to help secure the network and earn rewards, thereby effectively removing it from the liquid supply.

The institutional interest in Ethereum seems to be gathering steam, as evidenced by the U.S.-based spot Ethereum ETFs that on May 19 recorded a net inflow of $13.66 million. What makes this demand even more pronounced is that it came without any outflows across all nine ETFs, which suggests that both institutional and high-net-worth investors have a clear and consistent appetite for spot Ethereum.

The appearance of Ethereum ETFs is helping to connect traditional finance and digital assets by providing regulated access to ETH that doesn’t necessitate dealing directly with crypto infrastructure. These products are gaining traction and serving a dual purpose: They’re not only validating the emergence of Ethereum as a serious contender in the crypto space but also acting as a conduit for institutional capital that’s more apprehensive about diving into the Ethereum network directly.

The outflow situation is especially striking, implying that the latest crop of investors is sticking with ETH and not regarding its exposure as anything but an intermediate-term position. This can only be interpreted as a signal by young investors that they’re far more comfortable with holding Ethereum than, say, if they were mostly flipping it for Bitcoin.

Record-low exchange balances, rising on-chain capital, and increasing institutional inflows are good news for Ethereum and Bitcoin. The combination of these three metrics paints a compelling picture.

There’s a reason last week’s increase in Bitcoin’s price drew some attention. Anytime you see a major move in the price of Bitcoin, it’s worth asking what pushed it there. And as Coindesk’s John Law nicely summed it up in a tweet, this week’s price action seems to be related to a few key dynamics.

Ethereum’s network keeps evolving, while Bitcoin steadfastly holds its spot as “digital gold.” Now, if we take the declining exchange supply of both assets as a given, what are the implications for the next one to three months?

Bitcoin’s “functional” bottoming process seems like it’s entering the last phase ahead of the next upcycle. Meanwhile, Ethereum appears on the verge of some “structural” updates. If we take both as assumptions grounded in the current market narrative, can we make sense of the two assets together under the declining-exchange-supply dynamic?

Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.

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