While one might expect this trend to reverse as cryptocurrency prices fall, the share of ETH and BTC held on centralized exchanges continues to drop. How can this be explained?
The amount of ETH and BTC is plummeting on CEXs
Last week, analysts at Glassnode published a market report in which they highlighted, among other things, the increasingly low proportion of ETH and BTC held on centralized exchanges (CEXs).
Having declined almost steadily since 2020 for ETH and since 2022 for BTC, this figure now stands at 10.83% for ETH and 14.49% for BTC:
Percentage of ETH and BTC on CEXs
In recent years, it was commonly believed that the greater the amount of cryptocurrency held on centralized exchanges, the more this suggested a willingness to sell on the part of investors. In this context, it may be tempting to draw the opposite conclusion: that the fewer assets held on CEXs, the lower the expectations of selling.
However, such correlations should be interpreted with caution. While the chart above shows that this reasoning held true to some extent for BTC between 2021 and 2022, we also note that it did not apply to ETH. In fact, the start of the decline for ETH coincided with the launch of staking on the Beacon Chain.
Therefore, it is important to emphasize that these figures pertain only to assets held on centralized exchanges (CEXs):
The supply on exchanges simply represents the portion of circulating cryptocurrencies held in wallets linked to centralized exchange platforms. Note: This figure does not account for decentralized exchanges.
Consequently, it does not reflect the multitude of other tools available to investors, starting with ETFs. Indeed, although entities such as Coinbase have generally been entrusted with the custody of assets in these investment vehicles, institutional funds are not represented in the percentages of BTC or ETH held on CEXs.
However, it is primarily institutional investors who have driven this bull run, and, in this case, their intention to sell cannot be identified using this indicator.
Furthermore, even for retail investors, it is becoming increasingly easy to sell cryptocurrencies outside of centralized exchanges. In this context, we could see the percentages of ETH and BTC held on CEXs continue to decline over the years, until they reach a certain floor, regardless of market conditions.
