Deflation and FX exits could be the main driver of Ethereum’s price action
- Current reserves
- Liquidity issues
As sentiment around the cryptocurrency industry grows more positive every day, more Ethereum investors are choosing to withdraw their funds from crypto exchanges and leave them in their wallets, according to CryptoQuant. While this is a positive sign for the market, institutional investors or individuals may experience liquidity issues with the current flow.
At the time of publication, Ethereum’s reserves on exchanges remain at 18.5 million coins, gradually decreasing from August. In recent days, following the rapid rise in prices in the altcoin markets, some exchanges have faced small inflows. Ethereum’s reserves have grown from 18.49 million to 18.7 million in just two days.
Following the increase in entries on the exchanges, the price of Ether rose from $ 3,500 to $ 3,415, indicating the momentary appearance of selling pressure in the market.
While Ethereum’s total foreign exchange reserves currently stand at $ 64 billion, which is about 15% of the current market capitalization of the second largest cryptocurrency on the market, with the influx of funds potentially to come into the market, some large investors might face liquidity issues. .
The main source of potential fund inflow relates to the approval of physically backed Bitcoin ETFs. While there is no plan for Ethereum ETFs, the fact of the approval will set a precedent that on its own may attract more institutional grade investors to the market.
In addition to a constant decrease in reserves, the circulating supply of Ethereum is also decreasing due to the royalty burning mechanism discussed earlier. While demand for the DeFi and NFT industries remains high, the Ethereum network will most likely continue to burn more coins than miners and stakes can distribute.