Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry.
This week, we analyze leading indicators that have been pushing Ethereum to new highs even as Bitcoin retraces. Through an on-chain lens, we are able to identify some of the factors that may be behind Ether’s performance.
Ethereum Exchange Outflows Reach Record Levels
Due to the blockchain’s transparency, crypto analytics platforms such as IntoTheBlock are able to monitor funds flowing in and out of exchanges. Given the relevance of exchanges in crypto, these flows can be very relevant to identify market trends.
In the past week, Ether’s exchange outflows relative to its inflows reached its highest level to date. Net Flows — which subtract exchange deposits (inflows) minus withdrawals (outflows) — surpassed $1 billion on Jan. 22; that is $1 billion more Ether was withdrawn than deposited into centralized exchanges.
Generally, large exchange outflows suggest investors opting to move their funds out of centralized venues into (self) custody or other applications. This could be interpreted as a bullish signal, as funds outside centralized exchanges are typically harder or more expensive to sell.
Moreover, the withdrawal of these funds mean that there is now $1 billion less Ether available to be sold in centralized exchanges. The continuous withdrawal of Ether taking place could even lead to what is known as a sell-side liquidity crisis, where the lack of funds available to be sold ends up causing prices to spike. That could very well have had something to do with Ether’s recent all-time high as its mid-price grew nearly 20% following the sizable outflows.
Ether Institutional Demand Leading the Way
As recently covered in Coinbase’s 2020 Review, institutional investing in Ether is picking up. Blockchain data supports this claim.
At IntoTheBlock we closely follow Large Transactions Volume — the aggregate volume spent in transfers of over $100,000 in value — as a proxy to institutional activity. This value has been increasing throughout 2020 and at an even faster rate in 2021.
Large transaction volume in 2021 has surpassed $10 billion per day on multiple occasions. On Jan. 22, the day with over $1 billion in net outflows, $10.7 billion in large transactions was recorded on the Ethereum blockchain, pointing to institutional demand driving Ether’s price.
Short-Term Trading Also at Yearly Highs
Given the high amount of interest picking up for Ethereum, a significant portion of its total volume and holders has changed hands over the past month.
IntoTheBlock classifies as traders those addresses that have held a crypto-asset for under 30 days. The number of traders for Ether reached a multi-year high.
More remarkable, though, is the total volume of Ether held by these addresses. As displayed in the graph above, this value has increased to over 27 million ETH in January. This means that over 23% of Ether’s circulating supply switched addresses this month.
While this could be due to the aforementioned institutional demand, it also highlights the predominance of short-term trading. Ultimately, this should be taken with caution as periods of intense short-term trading activity are often followed by sharp corrections as we observed with Chainlink last fall.
Overall, the high exchange outflows and institutional volumes point to the growing demand for Ether. While this managed to push Ether to a new all-time high, traders should still be cautious as short-term activity reaches the highest levels since 2018.