Record outflow of Ethereum from cryptocurrency exchanges
The total exchange reserves fell by 7.3% to 22.8 million ETH last week alone. Two circumstances are spurring users to move coins to cold wallets: the promised move to PoS this year and the ongoing series of bankruptcies of market players.
Ethereum now relies on miners to collect transactions into blocks and provide a high level of security and decentralisation. However, the low bandwidth of the network, not exceeding 20 transactions per second, leads to a significant increase in fees in case of network congestion. For example, due to the release of Yuga Labs' new NFT collection in early May, the average transaction cost surged to $200.
To remedy the situation, Vitalik Buterin took the decision to migrate to PoS, where validators would work instead of miners. According to the developer, this will ultimately lead to an increase in decentralisation, security and a 95% reduction in energy consumption.
To implement this, a test network to switch to PoS is being developed in parallel with the current network. From November 2020, users can deposit funds into a deposit contract and earn income from staking. Despite the inability to move funds before the final migration, the deposit contract already stands at over $13 million ETH or $20 billion.
A successful migration would mean that the network can compete with young Ethereum killers in terms of speed and fees. More projects will be able to afford Ethereum as the underlying blockchain system, leading to increased investment and growth in the coin price. For this reason, a number of users are already buying Ethereum to move to a cold wallet or deposit.
The second reason for the record Ethereum outflow is the loss of confidence in investment funds. The major market players undergoing bankruptcy proceedings include Three Arrows Capital, Voyager Digital and Celsius. Others are suspending withdrawals, such as Babel Finance and Vauld.
Still, the leading force is the belief of long-term holders of Ethereum. This is evidenced by the coin's 23% rise against Bitcoin over the past two weeks, which began the day one of the developers designated 19 September 2022 as a tentative date for the Merge.
StormGain analytics team
(crypto trading, exchange and storage platform)