On-chain data shows that Ethereum has been experiencing high exchange outflows recently, but the development related to Tether (USDT) could be a bearish headwind for the market.
Both Ethereum and Tether have seen withdrawals from exchanges recently.
As on-chain analytics firm Santiment explains in a new report, mail In X, the market ended July on a mixed note in terms of exchange flows. The metric we’re interested in here is “exchange flow balance,” which measures the net amount of a particular asset entering or leaving wallets connected to centralized exchanges.
When this metric is positive, it means that inflows to these platforms are currently outpacing outflows. This trend indicates that there is currently demand for trading assets among investors.
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On the other hand, a negative indicator indicates that cryptocurrency holders are making net withdrawals from exchanges, which may lead to holding their cryptocurrencies for the long term.
The impact either of these trends could have on the broader market depends on the exact type of cryptocurrency in question: stablecoin or volatile asset. For the context of the current topic, Santiment cited data for Ethereum and Tether, which means that both types of currencies are relevant here.
Below is a chart shared by the analytics firm that shows the trend in the two assets’ cross-flow balance over the past few months:
As shown in the chart above, the exchange flow balance has recently seen a sharp negative spike for both Ethereum and Tether recently, meaning investors have been taking large amounts of these coins into self-custody.
For volatile assets, trading assets away can have a negative impact on their price, so a higher exchange reserve could be a bearish sign. Conversely, a negative exchange flow balance could be bullish, as it means that the potential “sell supply” of the coin is declining.
During the recent outflow wave, investors withdrew 80,763 ETH (roughly $268 million) from these platforms, the largest outflow in five months. Consequently, Ethereum saw a significant drop in supply from the sell-off.
In the case of stablecoins, swap flows also mean that investors want to swap assets, but since these tokens have a “stable” value around the $1 mark by definition, such trades have no impact on their price.
This does not mean that they are not important to the market, however, as investors typically use stablecoins to buy volatile assets like Ethereum, so large inflows from stablecoins like Tether could be bullish for these other coins.
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From this perspective, the exchange reserves of USDT and other stablecoins can be viewed as a potential “buying supply” for volatile cryptocurrencies. USDT recently saw net withdrawals of $346 million, meaning that this buying supply has been reduced.
“This reflects a decrease in the purchasing power of future purchases by traders, which is generally a necessary element for long-term price consolidation,” Santimet notes. It now remains to be seen how the Ethereum price will develop in the near future, given that bullish and bearish developments are occurring simultaneously in the market.
Ethereum price
At the time of writing, Ethereum is trading at around $3,300, down over 3% over the past week.
Featured image by Dall-E, Santiment.net, chart by TradingView.com
