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

Deflation and FX exits could be the main driver of Ethereum’s price action

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 individuals may experience liquidity issues with the current flow.

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 rise in prices in the altcoin markets, some exchanges have faced small inflows. Ethereum’s reserves have grown from 18.49 million to 18.7 million in just two days.

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 Ethereum’s total foreign exchange reserves currently stand at $ 64 billion, which is about 15% of the current market capitalization of the second largest cryptocurrency on the market, with the influx of funds potentially to come into 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 is no plan for Ethereum ETFs, the fact of the approval will set a precedent that on its own may attract more institutional grade investors to the market.

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 stakes can distribute.

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