Ethereum's balance on centralized exchanges has reached its lowest level since July 2016, potentially affecting liquidity and price dynamics in the market.
Decrease in Ethereum Balances on CEX
The balance of Ethereum on centralized exchanges has decreased by 6.7% in Q3 2021, according to The DeFi Report, marking the lowest level since July 2016. Michael Nadeau, the founder of The DeFi Report, refers to this decrease as an 'ETH supply shock.'
Market Impact of Reduced Balances
The decline in CEX balances may limit the immediately sellable supply of ETH, potentially tightening liquidity. Michael Nadeau highlights that this change indicates a relationship between on-chain strategies and price movements.
Trends and Insights
This trend reflects historical patterns observed during heightened DeFi activities, where increasing on-chain utility corresponds with declining CEX balances. Nadeau suggests that more capital moving on-chain may amplify the 'reflexivity' effect, influencing market behavior alongside price trends.
The decline in Ethereum balances on centralized exchanges may indicate a shift in investor interests towards decentralized financial strategies, which in turn could influence Ethereum's prices in the future.
