According to a report published by Glassnode, the amount of Ethereum on crypto exchanges dropped to a record three-year low of 14 million ETH just as prices soared above $4,000. Generally, the sentiment hovering around Ethereum has been positive, and another sign of that is the low exchange balance.
Even though the sentiment around ETH has been positive, this doesn’t mean that the market is turning bullish. This is due to the unpredictable nature of the crypto market,
In general, the crypto market suffered significant losses and dips this past week, with the price of Bitcoin dropping below the $47,000 mark and Ethereum falling to about $3,900. The balance has steadily declined over the past months; although recovery has been steady these past few days, investors feel that the worst is overdue due to the low exchange balance.
Factors Responsible for the Plunge
You can point out the downward spiral of ETH reserves on the central exchange to many factors. Although, one of the primary reasons for the dip is traders hold onto the asset rather than trading it on the central exchanges.
Another factor contributing to the plunge of ETH reserves is the emergence of Decentralized Finance (DeFi). Instead of deploying ETH tokens on the central exchange, they deploy them into decentralized platforms, giving them passive income.
Another major factor contributing to the decline of ETH might be the growing trend of continuous cyber-attacks on currency exchange. Just last week, Bitmart lost almost $200 million. This has driven many ETH holders to move their assets away from centralized exchanges.
The decline in ETH reserves can also be likened to the rise in Ethereum, which is a result of Smart Contracts which has supercharged the growth of the DeFi sector.
Also, Facilities offered by DEX platforms like Yield Farming and Staking, which has gradually become mainstream due to boosted trading activities and increased user interest, may have contributed to the decline of ETH reserves.
Ethereum Thrives Despite Competitors
Ethereum has established itself as one of the pillars of the DeFi market, and ETH looks to have a bright future ahead. Despite the countless number of networks constantly building infrastructure to compete with it, Ethereum still stands strong.
ETH currently has a lot in its favor as 2021 comes to a close. To further outpace its competitors, ETH is releasing the 2.0 upgrade, which aims to address all network performance and reliability issues. This would greatly facilitate the ever-growing meta-verse and Decentralized Finance.
The ETH 2.0 upgrades will be released in a phased manner moving into 2022. The most notable upgrades include Sharding and the shift to Proof-of-stake. Ethereum sits pretty comfortably, holding a solid resistance for some key levels.
What do Low Exchanges Mean for Ethereum?
A low balance of ETH on exchanges can result from bullish sentiments surrounding the crypto market. Low exchange balance can reduce supply dependent on the demand on popular crypto trading platforms.
Additionally, the ongoing network upgrades being carried out by Ethereum affects ETH’s demand and supply.
Low exchanges also indicate that long-term investors are migrating their assets from centralized exchanges to secure storage or possibly locking up their assets to earn overtime through passive income. This is because most centralized storage is prone to Cyberattacks