According to blockchain analytics, 25% of the total ethereum supply on exchanges has been withdrawn in the last year.
In January 2021, there were more than 24 million eth on all tracked exchanges. Since then, however, there has been a gradual and consistent month-over-month decline, with 18 million eth now residing on exchanges such as Coinbase or Kraken.
The amount on exchanges appears to correspond to price, but not completely, as total supply on exchanges remained a somewhat static straight line between April and June 2021. Price, on the other hand, more than doubled to more than $4,000 before halving to $2,000, as shown above.
That could be pure speculation, but it’s also possible that the rise of decentralized finance has given eth asset holders more options.
During the summer, the amount of eth on decentralized finance (defi) tracked the price, with approximately 2 million eth added between March and April.
What we may be seeing in terms of supply on exchanges is an inverse correlation with the above defi chart, rather than a correlation with price.
Supply on exchanges has steadily declined by 6 million eth, while supply on defi has steadily increased to 7.4 million eth, worth $26.4 billion dollars.
That implies that a parallel universe is being built within the parallel universe of cryptos themselves, just as it was before it was crypto to usd. It is now crypto to a collateralization platform and then to a yield providing platform, and that yield token can now be used as collateral to obtain a new stable called MIM, which is an algorithmic dollar.
We started with eth and ended up with ten things, but the important thing is that we still have the eth – minus any network fees that are now burned.
There is no interaction with dollars here, though you can get dollar-like things for ‘free’ in exchange for the risk you take, as if the price moves against you, you must repay whatever you borrowed or see some of your eth sold.
Bots, typically, bot businesses, sell. Their job is to liquidate you by invoking smart contract functions in order to obtain a platform fee or arbitrage pricing.
Because they require capital to run their business, the funds remain in that parallel universe, in crypto.
Much of what has been said thus far can be summarized as follows: 7 million eth have been effectively removed from circulation. It’s moving and doing things, but it’s not deciding. The amount in bitcoin is 200,000 BTC, or $11 billion.
There are now 8 million eth in the staking deposit contract, worth $28 billion. That sum has been removed from circulation even more strictly because it cannot be moved until after the Merger.
Then there’s more than 500,000 eth that has been and will continue to be burned. Making up roughly 20% of the total supply of ethereum that has been effectively removed from circulation.
That’s a supply crunch like eth has never seen before, but some of it may have been held anyway. However, defi introduces new opportunities, and many of them would not have occurred otherwise.
As a result, exchanges are now more for entry than for exit, because once in, there’s a lot you can do without going fiat.