Similar to Bitcoin, Ethereum may be facing an exchange supply shortage in the future. As the exchange supply continues to dwindle at an alarming rate, something appears to be happening. It is crucial to put all of these statistics into their correct perspective, however.

The Ethereum Exchange Supply Is Shrinking

It is uncanny how exchanges continue to note an ongoing decrease in their supplies for significant cryptocurrencies. For months, the supply of Bitcoin on centralized platforms has dwindled, leading many to believe a supply shortage is on the horizon. However, the overall liquidity is still relatively high, and traders can expect no immediate changes. 

For Ethereum, it appears a similar scenario is unfolding over the past few months. Since late August of 2020, the Ethereum exchange supply has begun to decrease. Whereas it was well above 25 million ETH at the time, that number has shrunk to 20.448 million. A near 20% increase is intriguing to note, but there are some other aspects to consider. 

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BlocDesk Ethereum Exchange Supply
Source; CryptoQuant

Whereas Bitcoin has roughly 12% of its circulating supply on centralized exchanges today, Ethereum has over 17% of its supply on these platforms. While it can lead to a supply shortage eventually – assuming this trend continues – there will not be any shortage of ETh for traders and speculators right away. Moreover, there is no guarantee this decrease in exchange supply will continue in the months to come.

Binance may be the biggest factor in these proceedings. As the world’s leading cryptocurrency exchange, its inflow of ETH is crucial in this bigger story. In 2021, the amount of ETH transferred to Binance wallets decreases, although the inflow remains relatively high. If this inflow drops below 100k ETH per day regularly, things may start to get a bit more exciting. 

Overall Exchange Netflow Turns Negative

With the current crypto market price action, an increase in exchange netflow would be a logical consequence. Many traders want to explore different markets to make a profit, especially when Bitcoin and Ethereum remain relatively volatile. However, the opposite effect is coming true, contributing to a decrease in exchange supply for Ethereum. 

BlocDesk Exchange Netflow ETH
Source: CryptoQuant

As the overall exchange netflow continues to turn negative more often,  one has to wonder what is going on. While some withdrawals may pertain to Ethereum 2.0 staking, numerous exchanges offer a custodial-oriented approach of supporting staking as well. As such, it remains unclear where this negative netflow comes from or what the more significant meaning behind it all is. 

For Ethereum to achieve the status of “exchange supply shortage”, a much bigger and faster outflow of liquidity is required. The current pace is certainly intriguing, but the exchange supply for Ethereum remains too high to make any meaningful difference. Assuming EIP-1559 is activated on the network shortly; however, that situation may change rather quickly.