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Ethereum Exchange Reserves Are Draining, Here's What It Means for Market

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Sun, 10/17/2021 - 13:48
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Arman Shirinyan
Deflation and exchange outflows may be main fuel for Ethereum's price action
Ethereum Exchange Reserves Are Draining, Here's What It Means for Market
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While sentiment around the cryptocurrency industry gets more positive each and every day, more Ethereum investors are choosing to withdraw their funds from crypto exchanges and leave them in their wallets, according to CryptoQuant. While this is a positive sign for the market, institutional investors or whale-tier individuals may face some problems with liquidity with the current flow rate.

Current reserves

At press time, Ethereum reserves on exchanges remain at 18.5 million coins, progressively decreasing from August. In recent days, following the rapid price increase on altcoin markets, some exchanges faced slight inflows. Ethereum reserves went from 18.49 million to 18.7 million in only two days.

Exchange Reserves
Source: CryptoQuant

Following increased inflows on exchanges, Ether's price has retraced from $3,500 to $3,415, which indicates the momentary appearance of selling pressure on the market.

Liquidity issues

While the total exchange reserves of Ethereum currently sit at $64 billion, which is around 15% of the current market capitalization of the second-biggest cryptocurrency out there, with the potentially upcoming inflow of funds to the market, some large investors might face liquidity issues.

The main source of the potential fund's inflow is tied to the approval of physically-backed Bitcoin ETFs. While there are no plans for Ethereum ETFs, the fact of the approval will create a precedent that can singlehandedly attract more institutional-grade investors to the market.

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In addition to a constant decrease in reserves, Ethereum's circulating supply is also decreasing due to the fee-burning mechanism presented previously. While demand for the DeFi and NFT industries remains high, the Ethereum network will most likely continue to burn more coins than miners and stakers are able to distribute.

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About the author

Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience.

Arman strongly believes that cryptocurrencies and the blockchain will be of constant use in the future. Currently, he focuses on news, articles with deep analysis of crypto projects and technical analysis of cryptocurrency trading pairs.