How will lower exchange Ethereum balances drive ETH prices higher?

Research firm Santiment noted that the supply of Ethereum on exchanges is at a 28-month low. Its ETH reserves account for 20.1% of the total Ethereum supply, the last time it reached a similar level was in November 2018.

What does this data mean? The chart below shows the relationship between the supply of Ethereum on exchanges and the fluctuation of Ethereum prices. From the chart we can see that the two are negatively correlated, and the rise of ETH in recent months corresponds to the decline of the balance of Ethereum on exchanges.

At press time, Ethereum is trading around $1,800, showing a bearish trend on the 24-hour chart. However, after a week of slumps, Ethereum has turned upside with a gain of 0.3% in the last hour. If Ethereum can stabilize around $1,800, it will gain more momentum to break through the $1,850 resistance level.

Where does the demand for Ethereum come from?

Currently, the supply of Ethereum mainly flows into two major areas: DeFi and the deposit contract of Ethereum 2.0.

DeFi Pulse data shows that nearly 9.4 million Ethereum is locked in DeFi protocols. This figure fell at the end of February, but since March 8, DeFi protocols have absorbed nearly 1.5 million ETH.

At present, this trend shows no signs of abating and will continue as more and more users are participating in the DeFi and NFT craze.

Among DeFi protocols, MakerDAO, Compound and Sushiswap hold the most ETH, with 3 million, 1.4 million and 1.3 million respectively. Next are Uniswap, Aave, Alpha Homora and Balancer, but among the latter, only Uniswap holds more than 1 million Ethereum.

On the other hand, Ethereum 2.0's deposit contract has also absorbed a large amount of ETH. Currently, the contract holds 3,559,362 ETH, estimated to be worth $6 billion. Arcane Research pointed out that since the end of 2020, institutional demand for ETH has also been increasing:

“ETH outstanding loans have been growing steadily. In the first quarter of 2020, the proportion of Ethereum outstanding loans was 5.5%, and in the following three quarters, this figure increased by 177%, reaching 15.5% at the end of the year. Of course, this growth can be partly attributed to the rise in the price of Ethereum.”

The continued demand for Ethereum could have a positive impact on its price and allow the rally to continue into 2021. According to ETH Gas Station, transaction fees on the Ethereum chain have once again reached a new all-time high, with the cheapest being 161 Gwei.

Original article: https://www.newsbtc.com/news/how-ethereum-low-supply-on-exchanges-could-drive-up-eth-price/

By Reynaldo Marquez

Compiled by: Yunjin