Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
The state of crypto – June 2023
Cryptocurrencies
Mads Eberhardt
Cryptocurrency Analyst
Summary: The balance of Ethereum on exchanges hits an all-time low upon the Shanghai hard fork, allowing stakers to unstake Ether. The lower exchange balance indicates that less Ether is immediately available to hit the market, suggesting an improved market sentiment. On the other hand, while Bitcoin’s circulating supply of the past 5 years continued to decline, Ether holders kept discovering dormant Ether to greatly increase the circulating supply in the last 5 years, driving a rise in the real Ether supply.
Immediately upon interacting with a blockchain, much data becomes publicly available on a public ledger. Analyzing this data may provide crypto traders and investors with helpful insight into the present state of the market. In “The state of crypto”, we take a look at the most important metrics to observe the market based on transaction and trading activity. Our main focus is the two largest cryptocurrencies Bitcoin and Ethereum, and we divide the metrics into short-term and long-term indicators. You find the report for the last month here.
Short-term
The balance of Ether on exchanges is at an all-time low amounting to 9.9% of the total circulating Ethereum supply. We largely attribute the decline in Ether exchange balances to the Shanghai hard fork in mid-April, which at long last provided stakers with the option to unstake Ether. This option has provoked a reshuffle of staked Ether, along with an overall increase in the amount of staked Ether. This has caused more Ether to be withdrawn from exchanges to be staked elsewhere.
One is the direct implication of the Shanghai hard fork; another is the market sentiment. The Shanghai hard fork was a risk-off event for Ethereum by fully finalizing Ethereum’s transition to proof-of-stake from proof-of-work known as the merge, ensuring that Ether may be unstaked, some of which have been staked for about 2.5 years. Together with Ethereum’s negative supply growth by cause of high demand for its block space, it is likely that the overall view on Ethereum has turned more positive, causing many to accumulate Ether before withdrawing it from exchanges. This is further stressed by the fact that Ethereum was up by 7.6% relative to Bitcoin in May.
With respect to Bitcoin, it likewise experienced a decline in exchange balances, although not as significant as Ethereum. Both cryptocurrencies saw fewer exchange inflows relative to March and April this year, in which months, though, the price volatility was greater, which led to more crypto constantly being shifted from one exchange to another.
Long-term
Identical to last month, Ether holders continued to discover truly dormant Ether not touched for over 5 years. This key metric is at a 6-month high, so 107.24mn Ether has been transferred in the past 5 years relative to a total supply of about 120.25mn Ether. We regard it predominantly as a result of the Shanghai hard fork, as the latter has set off dormant wallets to start staking. By that, the real circulating supply must again be raised to reflect the significant increase in the circulating supply of the past 5 years. In the same period, Bitcoin’s circulating supply of the last 5 years decreased.
In May, crypto ETPs, mutual funds, OTC trusts, and other exchange-traded crypto products experienced an outflow. This was primarily due to a substantial outflow from exchange-traded products of Bitcoin amounting to a net outflow of around $113.2mn. Ethereum saw an outflow equal to $9mn.
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