25% of the total ethereum supply on exchanges has been withdrawn over the past year according to blockchain analytics.
More than 24 million eth were on all tracked exchanges in January 2021. Since then however there has been a gradual and persistent decline, month over month, to now 18 million eth residing on exchanges like Coinbase or Kraken.
The amount on exchanges seems to correspond to price, but not fully as between April and June 2021, total supply on exchanges remained a somewhat static straight line. Price on the other hand doubled to more than $4,000 and then halved to $2,000 as can be seen above.
That could be down to pure speculation, but it could also be that the rise of decentralized finance has increased options for eth asset holders.
The amount of eth on decentralized finance (defi) did track price during summer with some 2 million eth added between March and April.
What we may be seeing therefore where supply on exchanges is concerned is not necessarily a correlation with price, but an inverse correlation with the above defi chart.
Supply on exchanges has persistently fallen by now ◊6 million, while supply on defi has persistently increased to now 7.4 million eth, worth $26.4 billion dollars.
That suggests a parallel universe of sorts is being built within the parallel universe of cryptos themselves as before it was crypto to usd. Now, it’s crypto to a collateralization platform and then a yield providing one and nowadays that yield token can itself be used as collateral to get a new stable called MIM, which is an algorithmic dollar.
We started with eth and we ended up with ten things, but the crucial point is we still have the eth – minus whatever network fees which nowadays are burned.
Here, there is no interaction with dollars at all, although you can get dollar like things for ‘free’ in compensation of the risk you take as if price moves against you, then you have to pay back whatever you borrowed or see some of your eth get sold.
Get sold by bots, usually, bot businesses. Their job is to liquidate you by calling smart contract functions to get a platform fee or an arbitrage like pricing.
Since they need some capital to run their business, the funds remain within that parallel universe, they remain in crypto.
Another way of saying much of the above is that 7 million eth has effectively been taken out of circulation. It’s moving, it’s doing things, but it is not fiating. For bitcoin the sum is 200,000 BTC, or $11 billion.
In eth there’s now also ◊8 million in the staking deposit contract, worth $28 billion. That has even more stringently been taken out of circulation as you can’t move that sum itself until sometime after the Merger.
Then there’s more than half a million eth burned and will continue to be burned. Making it all some 20% of ethereum’s total supply that has practically been taken out of circulation.
That’s a supply crunch the likes of which eth has never seen, but some of it may have been held anyway. However, defi does add new opportunities and so a lot of it might have not otherwise been held.
Thus exchanges are now more for entry than for exit, because once you’re in there’s a lot you can do without going fiat.