Bitcoin and Ethereum Held On Exchanges Fall To Multi-Year Lows, Here’s Why


Recent global developments have brought the cryptocurrency industry to light as people around the world begin to question the decision-making process of governments and central banks.

Multiple metrics such as the growing amount of Ether (ETH) and Bitcoin (BTC) locked in DeFi, the surge in on-chain transactions and activity, and the drop in BTC and Ether reserves on major exchanges show that investors are increasingly interested in cryptocurrency.

Data from CryptoQuant, a chain analytics company, shows that while Ether (ETH) set a new record above $ 1,500 on February 2, the amount of Ether held on all reserves on the exchange centralized continued to fall to new lows as a token. the holders have withdrawn their coins.

Price against all ETH reserves on exchanges. Source: CryptoQuant

Many analysts believe that the rapid expansion of the DeFi industry, the launch of Eth2 and the growing involvement of institutional investors are the main reasons for the decline in BTC and Ether held on centralized exchanges.

The rise of DeFi and yield farming

Every week, the number of participants interacting with the DeFi industry appears to be reaching a new high and as of February 2, the total value stuck in DeFi platforms reached $ 28.67 billion.

Total value locked in DeFi. Source: Challenge Pulse

Data from Defi Pulse shows that the majority of DeFi platforms are built on the Ethereum network and require Ether to transact with the protocol.

In addition to offering attractive ways to earn a return by simply lending Ether, an increasing amount of the available supply is directed to DeFi-related activities and is not available for trading.

A similar phenomenon is occurring with BTC, as holders seeking to participate in the DeFi space without selling their Bitcoin have wrapped them in synthetic ERC-20 versions of Ether.

BTC balance in exchange wallets. Source: Glassnode

Platforms like REN and BadgerDAO are leading this effort and a similar drain on the available Bitcoin supply could also help push the price of BTC up.

Eth2 and extended lockout staking

Since the launch of the Beacon chain on December 1, 2020, the Eth2 contract has allowed token holders to stake their Ether in the new PoS contract by becoming network validators.

Data from the Eth2 launch pad shows that there are currently 2,907,298 Ether with a total value of $ 4.39 billion in play on the network, earning an estimated 9.2% APR

Total ETH at stake vs estimated APR Source: Eth2 launch area

The contract has a multi-year commitment, but for holders who refuse to take the risk and volatility of DeFi yield farming, Eth2 staking offers a way to earn a yield over time rather than letting tokens rest on it. of exchanges or in cold wallets.

Institutional investors are starting to see Ether’s value proposition

Since 2020, Bitcoin has received the lion’s share of attention from the institutional investor crowd as investors like MicroStrategy CEO Michael Saylor lead the way by buying huge sums of Bitcoin and constantly tweeting about its value. estimated future.

Now that Bitcoin is over ten years old and considered more established, businesses are increasingly open to looking for the next big opportunity that the cryptocurrency industry has to offer. With the explosion of DeFi and its current reliance on the Ethereum network, Ether is quickly becoming a recommended choice for institutional investors.

Grayscale Investments temporarily closed its various crypto trusts to new investments in late December following the rise in the price of Bitcoin, but inflows resumed in early January and their total Ether holdings increased 242% in the past 3 months. .

Ethereum Trust ETH holdings in grayscale over time. Source: Grayscale investments

Coinbase also noted in its 2020 Annual Review that institutional investors are increasingly seeing Ether as a store of value, with “a growing number” of its institutional clients taking positions in the token due to the high yields offered.

The exchange also noted that while a majority of their customers bought BTC throughout 2020, Ether’s good year-end saw it outperform BTC in terms of price growth and that’s a trend. which continued until 2021.

Bitcoin and Ethereum YTD performance. Source: Digital Asset Data-NYDIG

The continued growth of DeFi, the attractiveness of the Eth2 contract, and the growing involvement of institutional investors are all signals that the Eth price may continue to rise.