Ethereum Exchange Supply Ratio Hits Lowest Since 2018

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In Brief
  • Ethereum's exchange supply ratio has hit its lowest recording since November 2018.

  • The ratio has dropped to 22.06% from 26.33% just 5 months ago.

  • This could be partially or wholly due to the increased interest in ETH as an investment, staking in the ETH 2.0 deposit contract, and the major increase in DeFi usage.

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With the recent bull run pushing Bitcoin past all time highs and Ether close to the verge of breaking, we see another bullish metric for the worlds second largest cryptocurrency by market capitalization.



Ethereum’s ratio of supply, measuring the amount of available Ether on cryptocurrency exchanges, continues dropping heavily. It is reaching levels not seen since November 2018. Santiment, a blockchain data analysis firm, tweeted the news.

“The ratio of #Ethereum tokens sitting on exchanges continues to decrease & move to offline holder wallets. At just 22.06% of tokens on exchanges compared to 26.33% five months ago, this continues to be one of the most promising signs for $ETH bulls”.



Ethereum keeps moving off exchanges

The data presented suggests that Ethereum will continue to move off exchanges. It most likely ends up in wallets where it will be held or spent as gas for defi (decentralized finance) or other dapps (decentralized apps). Users may be transferring ETH to cold storage wallets as long term investments. On the other hand, they could be using it to facilitate a variety of other smart contract based applications.

DeFi drives users to ETH

DeFi applications blossomed over the last year. TVL (total value locked) grew from around $600 million to almost $25 billion. This increases demand for Ether, which acts as the ‘gas’ for the Ethereum ecosystem. Thus, the record growth in defi use reflected Ethereum reaching yearly record highs for transaction fees generated. By this measure, it overtook Bitcoin by a whopping 83 percent in 2020. This increased use in DeFi means that users needed more ETH to complete their transactions.

Ethereum 2.0 and staking creating Demand

Besides the growth of defi and the use of Ether in general, the introduction of Ethereum 2.0 created a new mechanism for ETH users to generate additional yields. The launch of ETH 2.0 started the transition of the network from a PoW (Proof-of-Work) to PoS (Proof-of-Stake) verification method.

PoS allows users with a minimum of 32 Ether to stake their Ether, or deposit on the network. If they do that, they can verify Ethereum transactions and be rewarded. This introduced a staking contract where users could stake and ‘lock up’ their Ethereum, with the current ETH 2.0 deposit contract address sitting at over 2.5 million ETH.

It’s impossible to conclusively say where the ETH is moving to as it heads off exchanges.However, these three are most likely the main candidates. As Ethereum’s applications continue to grow and more ETH is staked in the ETH 2.0 contract (making it inaccessible for 1-2+ years until the next step of ETH 2.0 is made public), more Ether will leave exchanges and decrease available liquidity.

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Harrison is an analyst, reporter, and lead specialist at BeInCrypto based out of Tel Aviv, Israel. Harrison has been involved in the cryptocurrency space since late 2016 and is passionate about decentralized ledger technology and its potential.

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