- Exchanges facing multiple troubles due to low Ether supply
- Probable factors that led to Ether scarcity across exchanges
On May 26, Ethereum supply recorded its lowest numbers across all crypto exchanges. By various estimations, that number is said to be 17.86 million. Such a decline in Ether supply across exchanges hasn’t been seen since early 2018. Moreover, as per the data provided by Glassnode, only 14.85% of Ether is circulating in most exchanges. Last year, during the peak of the bull market, the amount of Ether supply on most exchanges experienced a significant decrease of around 9%, when compared to the previous level of 25%. Such a phenomenal decline in Ether supply could be linked to last November’s FTX collapse.
Possible factors driving Ether supply to record lows
Although there could be several factors behind the reduction of Ether supply across crypto exchanges, two of the most significant factors are discussed below:
- The sudden downfall of FTX
When FTX, one of the largest crypto exchanges globally, suddenly collapsed in November 2022. It caused massive investor panic across the crypto space, leading to many instantly liquidating their assets. Therefore, when people moved their digital assets into self-custody, the reduction of Ether supplywas bound to happen. While many people consider the movement of digital assets away as a positive indicator, the situation with ETH is different as people have chosen to re-stake their assets, which has led to a decrease in the overall supply.
- Shapella upgrade
Before the Shapella upgrade, many people thought it would improve the supply of Ether in their exchanges, as it convinced many validators to withdraw their staked ETH. Unfortunately, only a few of those validators retracted their staked ETH.
By contrast, others only took their staking rewards out of exchanges. For example, Bitfinex, Kraken, and others who preferred the Shapella upgrade saw their exchanges’ ETH outflow rate increase significantly.
Future of ETH supply across crypto exchanges
Ethereum is the second largest cryptocurrency behind Bitcoin when considering market cap and price. Thus, it is constantly trying to improve to take that elusive top spot someday. Ethereum recently went through an upgrade in 2021 known as EIP-1559. This upgradation led to Ethereum burning some of its gas fees alongside each transaction.
Moreover, Ethereum finally completed its long-awaited merge, which made it a proof of stake-network. As a result, such activities across Ethereum were inevitable, leading to a supply drop. If there is a decrease in Ethereum supply in the future, its demand could skyrocket. When supply is low, demand is bound to increase, and simultaneously, its price also increases. The day might not be far away when Ethereum stakes its claim as the top cryptocurrency.
Ethereum is constantly trying to improve its network to make itself popular among investors. Consequently, this supply crisis that Ethereum is going through is not likely to be devastating for its investors across the market.