The decentralized finance landscape has experienced a remarkable transition over the past few years, with the amount of Ethereum (ETH) held on centralized exchanges hitting a near five-year low. According to recent data from Glassnode, only 17.8 million ETH are currently held on exchanges, representing a mere 14.85% of the network’s total token supply. This figure is a significant reduction from its peak value of 30% in the summer of 2020.
Traditionally, the movement of cryptocurrencies like Bitcoin and Ethereum off centralized exchanges is viewed as a bullish sentiment among investors. On the other hand, a surge in cryptocurrencies moving to exchanges is viewed as bearish since it indicates that investors are possibly liquidating their holdings. Presently, Bitcoin’s exchange balance echoes this trend, showing a decline to levels unseen since March 2018, with just over 2.23 million BTC held on exchanges.
The question that begs to be asked is: why are investors leaving exchanges? Delving deeper into the data, it becomes evident that a significant portion of the decline came in November and December 2022, following the collapse of the FTX exchange. Subsequently, a mass exodus ensued across other major exchanges, including Binance, Kraken, and Coinbase. This mass exodus was likely due to contagion fears that permeated the market and led to a notable surge in sales of hardware wallet devices from providers like Ledger and Trezor.
An additional factor contributing to the decline of Ethereum balances on exchanges in May was the increase in staking. Data from Nansen reveals that the amount of staked ETH rocketed from 19.3 million before the Shapella upgrade to 21.2 million – an almost vertical rise since May’s beginning. Interestingly, Bitcoin’s exchange balance did not experience a similar decline during this timeframe, implying that staking played a significant role in the withdrawal of ETH from exchanges.
In light of these revelations, it is crucial to consider the long-term implications of this shift and its potential impact on the crypto market. The exodus from centralized exchanges supports the fundamental premise of decentralization, pushing the industry further into untapped territories. However, any downside risks to this development must be thoroughly assessed. Could the current bullish trend reverse if another exchange incurs significant setbacks or if investors lose faith in staking? Time will tell, but for now, the crypto community seems unwavering in its pursuit of a decentralized financial system.