The balance of Ether (ETH) available across cryptocurrency exchanges has reached a five-year low on May 26, with only 17.86 million ETH held on exchanges. This marks the most significant decline in exchange supply since April 2018.
Data from Glassnode reveals that a mere 14.85% of the total Ether supply is currently held on centralized exchanges. This contrasts with the 25-26% of supply held during the 2021 bull run.
The decrease in ETH supply on exchanges began in September 2022 and dropped substantially following the FTX crisis in November. Additionally, Ethereum wallet addresses holding over 100 ETH have declined to a six-month low.
Two key events may have contributed to the recent decline in ETH balances on centralized exchanges.
First, the collapse of the FTX crypto exchange led many users to transfer their crypto assets from exchange wallets to self-custody wallets. Second, and most crucially, the Shapella upgrade played a significant role.
The Shapella upgrade allowed thousands of validators to withdraw their staked ETH. Interestingly, only a small portion of validators chose to unstake their assets, while the majority opted to withdraw their staking rewards. This played a pivotal role in the drop of ETH held on exchanges.
The Shapella upgrade introduced significant improvements to Ethereum's network, including better scalability and security. As a result, more users were encouraged to stake their ETH, leading to a decrease in the available supply on exchanges.
Furthermore, major crypto exchanges like Binance, Bitfinex, Kraken, and others that supported the Shapella upgrade experienced a substantial outflow of ETH from their exchange wallets, contributing to the current balance decline.
In the week following the Shapella upgrade, the amount of ETH being staked exceeded the amount being withdrawn. Glassnode's report estimated that less than 1% of staked ETH was expected to be sold. Consequently, a large portion of ETH moving away from centralized exchanges returned to staking, further reducing the supply on exchanges.
This shift of assets away from exchanges is generally seen as a bullish sign, as it indicates that traders are not looking to sell at the current price. In Ethereum's case, the re-staking of ETH appears to be the primary reason for the declining exchange supply, reflecting increased confidence in Ethereum's long-term potential and the benefits brought by the Shapella upgrade.
