• How Ethereum is Beating Bitcoin at Its Own Game of Digital Scarcity

  • For the majority of its existence, Ethereum has been pitted against the top crypto Bitcoin. Because the former has more use cases, many investors believe that it will be more valuable than bitcoin in the long run. When it comes to performance, Ethereum has exceeded investors’ expectations. For the last couple of years, it has outperformed bitcoin year after year.

    While performance metrics remain important, Ethereum has broadened the competition. It is no secret that this year’s exchange reserves have been plummeting. Leading to never-before-seen bull market levels. Outflows from exchanges have far outstripped inflows, indicating that investors are accumulating rather than selling their coins.

    In a similar vein, Ethereum exchange reserves have fallen below those of bitcoin. Both assets have increased coin scarcity, but metrics indicate that Ethereum scarcity is greater than Bitcoin’s.

    Ethereum’s liquidity has fallen below that of Bitcoin.

    Both assets’ exchange balances relative to their circulating supply have fallen this year. Even as the market rallied due to another bull market, the downward trend continued. Currently, bitcoin exchange balances relative to total circulating supply have reached a three-and-a-half-year low of 13.32 percent. The last time bitcoin exchange balances were this low was in 2018, when the bull market was nearing its end.

    In contrast, Ethereum’s exchange balance levels relative to its circulating supply were shockingly low at 12.93 percent. This means that the market’s liquid ETH supply has fallen below bitcoin.

    Outflows have been most severe on centralized exchanges. Exchange reserves have decreased not only in the top two cryptocurrencies, but also throughout the altcoin market. The chart below depicts a macro trend of ETH and BTC and their increased scarcity over time.

    Factors That Could Work Against This

    The data used to present these figures came solely from centralized exchanges. Decentralized exchanges, in which decentralized finance (DeFi) has thrived, were not considered. Decentralized exchanges have seen increased patronage as a result of so many investors taking advantage of DeFi. As a result, this could explain why centralized exchanges have such low exchange balances. While also demonstrating that Ethereum’s liquid supply may not be lower than bitcoin’s.

    Furthermore, not all of the centralized exchange balances were taken. FTX is a well-known centralized exchange that was left out of these metrics. As a result, the current exchange balance relative to liquid supply could have been significantly underestimated. That is, both bitcoin and Ethereum may have higher percentages than those shown in this report.

    Regardless, the data shows that ETH is becoming increasingly scarce on centralized exchanges. As a result, these avenues are more scarce than bitcoin. At the time of writing, ETH is worth $3,366 and bitcoin is worth $45,700.

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