Ethereum supply ratio on exchanges hits lowest level since 2018

With the recent bull run pushing Bitcoin past its all-time high and Ethereum on the verge of a breakout, we are seeing another bullish indicator for the world’s second-largest cryptocurrency by market cap.

Ethereum’s exchange supply ratio, a measure of the amount of ETH available on cryptocurrency exchanges, continues to drop sharply. It hit a new low since November 2018. Blockchain data analysis company Santiment tweeted the news.

“The percentage of Ethereum on exchanges continues to decline and move to offline holder wallets. Exchange tokens account for only 22.06% compared to 26.33% five months ago, which remains one of the most promising signals for USD bulls.”

Ethereum continues to move away from exchanges

The data provided suggests that Ethereum will continue to move off exchanges. It will most likely end up in wallets where it is stored or spent as GAS for defi (decentralized finance) or other dapps (decentralized applications). Users may move ETH to cold storage wallets as a long-term investment. On the other hand, they may also use it to facilitate various other smart contract-based dapp applications.

DeFi brings users to ETH

DeFi applications have flourished in the last year. TVL (total value locked) has grown from about $600 million to nearly $25 billion. This has increased demand for Ethereum, the “oil” of the Ethereum ecosystem. Therefore, the record growth in defi usage reflects Ethereum’s record high transaction fees for the year. By this statistic, it surpassed Bitcoin in 2020, with a whopping 83%. Increased use in DeFi means that users need more ETH to complete transactions.

Ethereum 2.0 and staking create demand

In addition to the growth of DeFi and Ethereum usage in general, the launch of Ethereum 2.0 has created new mechanisms for ETH users to generate more returns. The launch of ETH 2.0 began the network's transition from PoW (Proof of Work) to PoS (Proof of Stake) verification methods.

The PoS mechanism allows users with a minimum of 32 Ethereum to pledge their Ether or deposit on the network. If they do so, they can verify Ethereum transactions and receive rewards. This method introduces a pledge contract where users can pledge and "lock" their Ethereum. The current ETH 2.0 deposit contract address has more than 2.5 million ETH.

These three directions are the most likely paths for ETH to leave centralized exchanges soon . As Ethereum applications continue to grow, and more ETH is staked in ETH 2.0 contracts (making them inaccessible for 1-2 more years until the next steps of ETH 2.0 are made public), more ETH will leave exchanges and reduce available liquidity.