Ethereum Exchange Balances Fall to July 2016 Levels
- Ethereum balances on CEXs reach lowest since July 2016.
- Decreased ETH supply suggests potential price increase.
- On-chain yield strategies drive lower CEX balances.
Ethereum balances on centralized exchanges have dropped to their lowest level since July 2016, decreasing by 6.7% so far in the third quarter of 2021, according to The DeFi Report.
The decline suggests a shift towards on-chain strategies, potentially impacting liquidity and price dynamics in the Ethereum market as investors seek alternative yield opportunities.
Ethereum’s balance held on centralized exchanges has dropped, marking its lowest level since July 2016. Michael Nadeau, Founder of The DeFi Report, reports a 6.7% decline so far in Q3 2021, describing it as an ETH “supply shock.”
Michael Nadeau highlights treasury-like entities adopting on-chain yield strategies that reduce exchange balances. The move indicates a shift to self-custody, DeFi, staking, and treasury programs instead of traditional exchange custody.
The latest metric affects the Ethereum market by potentially limiting immediately-sellable supply, thereby tightening liquidity. Nadeau’s update on CEX balance declines suggests a closer relation between on-chain strategies and price dynamics. As he states,
The ETH supply shock is unfolding in real-time… In the third quarter so far, ETH on CEXs has decreased by 6.7%. It has now dropped to the lowest level since July 2016.
Financial implications stem from limited liquidity potentially increasing Ethereum’s price when demand rises. Additionally, the decrease in exchange-held Ethereum could invoke a “reflexivity effect,” enhancing market activity alongside price shifts.
The ongoing decline mirrors historical trends observed during heightened DeFi activities. Previous instances demonstrate that increasing on-chain utility corresponds with declining CEX balances, indicating a growing inclination towards decentralized finance applications.
Nadeau suggests more capital moving on-chain may amplify this “reflexivity” effect, where market fundamentals and activities follow the price trend. The trend highlights institutional strategies favoring on-chain means rather than centralized custodial options.
