• Ethereum Exchange Reserves Are Depleting; What Does This Mean for the Market?

  • According to CryptoQuant, while sentiment in the cryptocurrency industry is improving by the day, more Ethereum investors are choosing to withdraw their funds from crypto exchanges and keep them in their wallets. While this is a positive sign for the market, institutional investors and high-net-worth individuals may face liquidity issues with the current flow rate.

    Reserves for the present

    At the time of publication, Ethereum reserves on exchanges stood at 18.5 million coins, a figure that had been steadily declining since August. Following the rapid price increase on altcoin markets in recent days, some exchanges saw slight inflows. In just two days, Ethereum reserves increased from 18.49 million to 18.7 million.

    Following increased inflows on exchanges, Ether’s price has retraced from $3,500 to $3,415, indicating the appearance of selling pressure on the market for the time being.

    Problems with liquidity

    While Ethereum’s total exchange reserves currently stand at $64 billion, or roughly 15% of the current market capitalization of the second-largest cryptocurrency, some large investors may face liquidity issues with the potentially upcoming inflow of funds to the market.

    The approval of physically-backed Bitcoin ETFs is the primary source of potential fund inflows. While there are no plans for Ethereum ETFs, the approval will set a precedent that will attract more institutional-grade investors to the market on its own.

    In addition to a constant decrease in reserves, Ethereum’s circulating supply is decreasing as a result of the previously described fee-burning mechanism. While demand for DeFi and NFT remains high, the Ethereum network will almost certainly continue to burn more coins than miners and stakers can distribute.

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