The crypto market seems to be in a very interesting situation, as exchange-held cryptocurrencies are at their lowest points.
Bitcoin, for example, recorded a six-month low, with a steady decline since mid-May. The last time Bitcoin’s exchange reserves were this low, was in early January according to crypto analytics company Santiment.
“The six-month low is a promising sign, as it generally will indicate that there is a decreased risk of more major BTC selloffs,” Santiment noted.
The exchange reserve low comes after a major Bitcoin selloff in mid-May, with a climax on May 19. The selloff pushed the total crypto market capitalization down by $1.2 trillion.
Exchange flow data is one of the most vital tools for monitoring Bitcoin’s price trajectory in short to medium terms. For example, in the event of an exchange flow increase, the crypto market is preparing for a selloff.
Bitcoin is in a steady price decrease since mid-April, but the renewed confidence in the world’s leading crypto asset with Latin America adopting Bitcoin, and the anticipated shift in mining from China to other regions.
The exchange outflow is also fueled by Binance having regulatory issues globally. Recently, Thailand’s Securities and Exchange Commission joined the authorities in the Cayman Islands, the U.K., and Japan for filing criminal complaints against the company.
Ethereum has also experienced a similar faith, as exchange reserves for the altcoin leader hit a new low for the first time in over two years. In June 2020, Ethereum on exchanges reached a low of 26 million, while the current number of ETH on exchanges fell down to 21 million. In contrast with Bitcoin, the ever-increasing Ethereum price resulted in exchange reserves continuously going down.
One of the biggest reasons for the exchange outflow for Ethereum is the introduction of ETH 2.0’s staking contract. The transition of Ethereum from a Proof-of-Work (PoW) consensus algorithm to a Proof-of-Stake (PoS) transaction verification method is a pivotal topic in the altcoin world, as more and more users decide to stake their ETH tokens for a staking reward.
Š•thereum's transition to ETH 2.0 would eliminate miners, and with a minimum amount of tokens for setting up a validator node set to 32, investors seem more likely to adopt the new means of passive income, rather than trading Ethereum.
Meanwhile, more and more users are losing faith in large centralized exchanges around the globe. The “Not your keys, not your coins.” mantra continues to spread around the crypto sector as exchanges are technically holding the keys to the coins, at least in most cases. The losing faith in centralized exchanges made DeFi a preferred option for ETH investors.