Ethereum in the dive: stock market deductions at four-year low

Ether withdrawals on exchanges are at a four-year low. Bad signal? Not necessarily.

The fact that the crypto 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 quintupled. At least at the moment, however, the hunger for ether seems to have been satisfied. Exchange deductions slid to a four-year low in December, data from Glassnode shows.

At first glance a dramatic development, the withdrawal from stock exchanges is ultimately a reliable indicator of high or low demand. The less ethers migrate from the trading venues, the lower the price expectations. But the devil is in the details.

Stock exchanges continue to decline

A very banal reason for the decline: the price increase. If the value of ether increases, fewer percent ethers will be deducted from the exchanges despite the same trading volume. Another reason could be the shift in stocks to cold wallets. Last but not least – and probably also because of prominent stock market hacks – investors are now more aware of their own safekeeping solutions.

Viewed in isolation, the four-year low can be derived from ether oversaturation. The decisive factor, however, is the relationship between inflows and outflows, i.e. the coins transferred to and from exchanges. Their ratio determines the available supply quantity. As the graph from Glassnode shows, price increases correlate with a preponderance of deductions, while sales on exchanges increase supply and thereby depress price. Inflows are currently dominating the course.

However, this is more of a snapshot than an ongoing trend. A look at the stocks on the exchanges shows that the amount of ether held by trading venues continues to decline. At the beginning of the year there were still 18.9 million ETH, meanwhile the stock has melted to a total of 14.3 million ETH.

Ethereum and its “killers”

Even if the low for the year in exchange outflows is explained by the background of price developments, the overall declining supply, independent custody solutions and a currently sluggish market situation: Ethereum competes for market share like hardly any other cryptocurrency. The smart contract pioneer is bursting at the seams, which is reflected in consistently high transaction fees.

It is true that Ethereum draws on its network effects. Ethereum counts too over 3,800 by far the most decentralized applications (dApps). And that too Total Value Locked in DeFi-Anwendungen is unrivaled at over $ 157 billion. But more and more cryptocurrencies and platforms are sawing Ethereum’s throne. Solana, Cardano, Polkadot, Avalanche: The list of “Ethereum killers” is getting longer – and more threatening. If Ethereum does not want to jeopardize its lead, the switch to Ethereum 2.0 should go smoothly in the new year.

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Ethereum in the dive: stock market deductions at four-year low