Ethereum Exchange Reserves Keep Dropping but Liquidity Won’t be an Issue

BlocDesk Ethereum Exchanges Balances EIP-1559

When it comes to different cryptocurrencies, keeping tabs on exchange balances is crucial. This metric can help determine if a market will turn bullish or bearish. As far as Ethereum exchange reserves indicate, there may be some bullish momentum ahead. 

Lower Ethereum Exchange Reserves

The year 2020 proves interesting for many different reasons, at least in the crypto world. Exchanges are seemingly losing a lot of consumer trust in recent months. It is a well-known fact there are fewer BTC in exchange reserves. That same concept now applies to Ethereum as well. A significant shift is taking place, and it may not slow down.

To put this into perspective, the trend is somewhat baffling. Up until May of 2020, the Ethereum exchange reserves were relatively high. That momentum suddenly turns around and results in an ongoing decline in ETH reserves. Finding a reason for this behavior is challenging, yet Bitcoin shows a nearly identical trend.

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BlocDesk Ethereum Exchange Balances
Source: CryptoQuant

With the Ethereum exchange reserves dropping in recent times, one has to wonder what may trigger such a trend. Granted, some people may opt to free up funds to partake in Eth2 staking. It is a lucrative option for those who want to keep earning Ether at all costs.

On the other hand, there is ongoing DeFi growth. Decentralized finance is still thriving, which may result in lower Ethereum exchange reserves. Hodlers can explore many options with their ETH balances these days. Keeping it in an exchange is the least favorable option of them all. It doesn’t do anything other than put one’s funds at risk. 

Will This Trend Continue?

Judging by the current momentum, the Ethereum exchange reserves may continue to decrease. Even though some platforms now provide DeFi mining – or similar options – they have an uphill battle to fight. A lot of other market options are far more appealing than dealing with centralized exchanges or trading platforms. 

For the overall market, however, this may not make much of a difference. After all, there is still over 11.84 million ETH in Ethereum exchange reserves today. It is more than sufficient to keep the Ether price heading in either direction without missing a beat. Currently, the momentum remains somewhat bearish, just like Bitcoin’s. 

BlocDesk Ethereum Price
Source: CoinGecko

Until the exchange balances drop in the single digits,  the metric will not make much of an impact on Ethereum. For a currency with over 104 million in circulating supply, having over 10 million in exchange liquidity can be problematic. This metric only measures known centralized exchange wallets too. It does not include OTC trading or P2P marketplaces.