On-chain data shows investors withdrew a large amount of Ethereum during 2022 as the ETH reserves have fallen by more than 30%.
Ethereum Exchange Reserves Sharply Down This Year
As pointed out by an analyst in a CryptoQuant post, these investors may have been withdrawing with the aim of holding in the long term. The “exchange reserve” is an indicator that measures the total amount of Ethereum currently being stored in the wallets of all centralized exchanges.
When the value of this metric goes up, it means holders are depositing their coins to exchanges right now. One of the main reasons investors use exchanges is for swapping their ETH to another crypto or for cashing out in fiat. Thus, the exchange reserve can act as the selling supply of the asset, and so any increases in it can have bearish effects on the price.
On the other hand, a decrease in the indicator’s value implies investors are transferring out their coins at the moment, which suggests the selling supply is going down. Prolonged exchange withdrawals can be a sign that holders are accumulating currently, meaning that they are bullish on the crypto.
Now, here is a chart that shows the trend in the Ethereum exchange reserve over the last few years:
Looks like the value of the metric has been going down in recent months | Source: CryptoQuant
As the above graph displays, the Ethereum exchange reserve already saw some decline during 2021, but the downtrend has been even sharper in 2022. The indicator used here is the “all exchanges” version, meaning that it covers data related to both spot and derivative exchanges.
An interesting trend to notice is that the decrease in the metric’s value has been especially rapid since the collapse of FTX. This is because a well-known exchange like FTX going down made investors more vary of centralized platforms than ever, leading to them withdrawing their cryptocurrencies in mass from exchanges so that they can hold onto them in personal wallets, the keys to which they own.
In total, the Ethereum exchange reserve has gone down by more than 30% over the course of 2022. “One of the best things in the year has been the possibility of having a deflationary ETH,” says the quant. “It seems that investors believe it too and have withdrawn large amounts of CEX with the most likely purpose of holding them for the long term.”
At the time of writing, Ethereum’s price floats around $1,200, up 1% in the last week.
ETH has been moving sideways in the last few days | Source: ETHUSD on TradingView