The ETH balance held by exchanges has fallen to a four-year low in anticipation of Ethereum’s planned switch to a pure Proof-of-Stake blockchain.
issuance now: 15K ETH/day
issuance at merge: 1.5K ETH/day pic.twitter.com/DH7liaytr6
— ultra sound money 🦇🔊 (@ultrasoundmoney) March 15, 2022
ETH transaction flows propose a super bullish pattern
Since the beginning of this year, 550,000 ETH has been withdrawn from exchanges, signaling that HODLers are confident enough that the price of Ether will rally, to move their tokens into cold storage.
This brings the ETH balance on crypto exchanges down to a level not seen since June 2018, according to Glassnode. On Tuesday alone, 180,000 ETH left the exchange-held wallets, which is the largest net outflow registered on a single day since October 2021.
At the same time, IntoTheBlock notes that 190,000 ETH was deposited into Lido’s liquid staking pool. Lido is a DeFi platform that lets users who don’t have the 32 ETH in order to run their own validator node participate in staking by converting their ETH to the platform’s stETH tokens. In total, 1 million ETH has been staked in the last 30 days.
1M ETH soaked up in 30 days
and the APR doubles at merge pic.twitter.com/euseh72k4z
— ultra sound money 🦇🔊 (@ultrasoundmoney) March 17, 2022
A perfect storm is brewing
The perfect storm is what meteorologists call a once-in-a-lifetime event that is the result of three rare phenomena coinciding. For Ethereum, there are actually four events ahead that can drastically reduce the supply of ETH.
The first is what some in the Ethereum community call the “Triple Halvening” when the annual issuance of ETH will drop from 4.3% pre-merge to an estimated 0.4% post-merge. Ethmerge.com notes that this is equivalent to “3 Bitcoin halvenings happening at once”:
For comparison, Bitcoin currently issues 900 BTC per day — an annual issuance of about 1.7% of the total BTC supply. The next two “Halvenings” will reduce Bitcoin’s issuance to approximately 0.8% in 2024 and 0.4% in 2028. With Ethereum’s expected drop in issuance after “The Merge” to between 0.3% – 0.4% it will not be until 2028 that Bitcoin’s issuance is again within range of Ethereum’s.
Secondly, the switch to Proof-of-Stake creates a more favorable tokenomic model. In contrast to miners, stakers will not have to sell their tokens in order to pay for their energy bills. Thirdly, the base fees introduced by EIP-1559 will continue to burn ETH. This means that it is more than likely for Ether to become deflationary for most, or even all of the time.
Finally, staking withdrawals are still not implemented. This means that the issuance of ETH will be zero for the upcoming months. On Twitter, superphiz.eth jokingly notes:
Lol. No one told anon that there’s going to be a liquidity squeeze in newly minted Ether in a few months. No newly minted Ether will enter circulation between the Merge (Juneish) and Shanghai (Decemberish). I’d text them but I don’t even have their number. You got it? Poor anon.