Ethereum has recently taken hits along with the rest of the wider market. Numerous market dips and crashes have seen the digital asset crashing back down below $3,000 in recent weeks and this has left ETH in a struggling position. With momentum down, it looks like the market is headed for another bear market as cryptocurrencies are now recording lower lows and lower highs with each dip and recovery.
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The asset had dropped below the $2,700 price range for the first time in a two-month period. And the September slowdown has caused recovery trends to fall short of expectations. Despite this, crypto analyst Lark Davis does not believe the asset should be counted out just here. Pointing to some interesting exchange reserve metrics, the analyst believes that Ethereum could very well be on the verge of an explosion.
Exchange Reserves Drop 15%
Declining exchange reserves volume has been reported upon recently. This is not peculiar to Ethereum alone. Data shows that in addition to ETH, Bitcoin exchange reserves have also plummeted in the past couple of months. This goes against the grain of how bull markets have operated in the past. With each past rally have come increased exchange reserves as investors moved their assets onto centralized exchanges to sell and take profits. But 2021 has been the year of the unexpected in the crypto market.
ETH price trading below $3,000 | Source: ETHUSD on TradingView.com
Instead of exchange reserves going up as the price went up, it has gone the opposite direction. At the height of the bull rally this year, there had been 21 million ETH on centralized exchanges. But even as the market has dipped and recovered at various points, exchange balances are going down. Now, there is about 18 million ETH on centralized exchanges, showing a 15% decline from the height of the bull market earlier in the year.
Crypto analyst Lark Davis said of the decreased exchange balances, “There are around 3 million less Ethereum on exchanges now compared to when the price was at an all-time high. This market is a ticking time bomb.”
Why Exchange Reserves Are On The Decline
One reason for exchange reserves being on the decline is due to accumulation patterns by investors. Market sentiment has skewed more towards holding than selling despite the recent bull rally and as such, investors are buying more cryptocurrencies and moving these assets to more secure personal wallets. These accumulation patterns are driving what may be a supply shock across the top 2 cryptocurrencies in the market.
Another reason for declining Ethereum exchange reserves has been attributed to the rise of decentralized finance (DeFi). This is because most DeFi activities are carried out on the Ethereum blockchain and as such, ETH tokens are required to carry out transactions. Therefore, investors are moving their ETH from centralized exchanges to decentralized exchanges, leading to decreased centralized exchange reserves.
Chart from TradingView.com