The ether (ETH) reserves on the exchanges continue to decline, although they are at historic lows. This trend points to a supply bottleneck for ETH on the main trading platforms after an Ethereum 2.0 deposit wallet was released for staking.
As Cointelegraph had previously reported, the stake was close to $ 4 billion in January 2021, which resulted in around 2% of the ETH offering being set in the Eth 2.0 deposit agreement.
The low supply of ETH on the exchanges should ease general selling pressure on the asset, especially if demand for ETH increases in parallel with the rapid growth of the DeFi market.
Why doesn’t ETH see any strong upward momentum?
In relation to the amount of ETH that circulates on the stock market, the price of ETH did not experience any strong upward momentum in early February.
Analysts at the on-chain data analytics platform CryptoQuant said:
“The reserve of ETH on all centralized exchanges is decreasing, while the reserve of BTC has been repeating up and down since January of this year.”
There are two main reasons why ETH has consolidated over the past two weeks. First, the rise in US 10-year Treasury yields caused the overall risk market to collapse. Second, Bitcoin has surpassed ETH and surpassed ether’s momentum.
In the foreseeable future, however, both traders and on-chain analysts expect ETH to gain momentum again.
A pseudonymous trader named “Cactus” said that due to its technical market structure, ETH is ready to hit a new all-time high as long as it holds $ 1,750. He wrote:
“As long as we keep absorbing sales here and daily closings are above $ 1750, we expect new ATHs soon.”
Additionally, the recent drop in BTC price didn’t see a significant drop in ETH, while the ETH / BTC pair actually saw a surprising rebound, meaning the bull cycle remains intact.
“The next big pulse wave could occur as soon as this phase of consolidation and compression is complete. This next pulse wave should drive Ether well over $ 2,000,” said Michael van de Poppe, analyst at Cointelegraph Markets, in his most recent analysis.
Due to the declining foreign exchange reserves and the favorable technical market structure, CryptoQuant CEO Ki Young Ju noted that ETH recorded the second largest hourly outflow on March 16, 2021.
Outflows from exchanges are usually a sign of positive market sentiment, as it likely means that an institution or high net worth investor is amassing ETH and sending it to a self-hosted wallet. Ki said:
“We just had the second largest outflow of ETH dollars this year in hourly data. It appears that the liquidity crisis is worsening on the sell side of centralized exchanges. That is bullish.”
The decline in foreign exchange reserves alone, due to Ethereum 2.0, might not be enough to generate a short-term upward trend for ETH.
In the first few weeks after its launch, Lido, a staking platform, staked out over 60,000 ETH through Ethereum 2.0.
Due to the use of the Lido and the payments to the Eth 2.0 contract address, ETH recorded a massive decline in foreign currency reserves. Without important catalysts, however, Bitcoin’s exchange rate reserves have also decreased significantly over the same period.
Therefore, it is important that other key data points in the chain, such as increasing transaction volumes and short-term exchange rate outflows, complement the general downward trend in foreign exchange reserves to bolster the case for a broader short-term rally.
Treasury returns and the dynamics of the stock market are critical
For the foreseeable future, cryptocurrencies would most likely have some correlation with the US Treasury yield and the stock market.
Last month, the crypto market had a high inverse correlation with 10-year government bond yields.
As the Treasury’s yield neared 1.6% in late February, Bitcoin price fell to its recent lows of $ 43,000, bringing with it Ethereum and other top alternative cryptocurrencies.
As long as government bond yields remain stable and US stimulus checks are introduced, the outlook for Ethereum should remain bullish throughout March.