Recent data from Glassnode indicates that the balances of Bitcoin and Ethereum on centralized exchanges have dropped to record lows. Bitcoin balances on exchanges are currently at 11.6%, the lowest since December 2017, while Ethereum balances have hit 10.6%, the lowest since October 2015. The decline in exchange balances has been attributed to the introduction of crypto-related spot exchange-traded funds (ETFs) in the United States.
Market experts have linked the decreasing exchange balances to the approval of ETF products for Bitcoin by the Securities and Exchange Commission (SEC) and 19-b filings for Ethereum. HeyApollo data reveals that spot Bitcoin ETFs have acquired 857,700 BTC, valued at $58.5 billion, in just five months. Leading this acquisition is BlackRock’s IBIT ETF with around $20 billion in assets, followed by Fidelity’s FBTC with approximately $11 billion.
While spot Ethereum ETFs have not yet started trading, there has been a significant amount of withdrawals from exchanges following the SEC’s approval. According to CryptoQuant data, 777,000 ETH, worth about $3 billion, have been withdrawn from exchanges. The option to stake ETH has also contributed to the decrease in exchange balance, with 32.8 million ETH, equivalent to 27% of its total supply, currently staked to support the network.
The trend of declining exchange balances has raised concerns about a potential supply crunch for Bitcoin and Ethereum. Experts suggest that the increasing demand for these cryptocurrencies could lead to a scarcity of supply in the market. Leon Waidmaan, editor of BTC Echo, recently advised investors to prepare for a “supply squeeze” and the likelihood of significant price movements in the near future.
Historically, a decrease in digital assets held on exchanges indicates that investors are more inclined to hold onto their investments rather than selling them. This reflects a bullish sentiment and expectations of future growth in the market. A supply squeeze resulting from the low exchange balances could have a substantial impact on prices by limiting the available supply, potentially leading to significant price increases if the current accumulation trends persist.
The introduction of spot ETFs for Bitcoin and Ethereum has had a profound effect on the exchange balances of these cryptocurrencies. The decreasing availability of Bitcoin and Ethereum on centralized exchanges could signal a supply crunch in the market, leading to potential price surges in the future. Investors need to carefully monitor these developments and adapt their investment strategies accordingly to navigate the evolving landscape of the crypto market.