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In the letter
- ETH sitting in smart contracts has gone from 11% in June to over 16% currently.
- Aether in trade has gone from 19,000 in August to less than 16,000 now.
- The use of smart contracts stabilized in October, although it remains near its all-time high.
The Ethereum ecosystem in 2020 witnessed a DeFi explosion that helped push the price of ETH higher while launching potentially profitable new tokens. But now traders have to ask themselves: what to do with all that ETH now that its price is going up and the DeFi protocols are back to life?
Their answer: keep doing the same thing.
According to data from Glassnode, the amount of Ethereum held in exchanges has been decreasing since the end of July 2020. Meanwhile, the percentage of Ethereum deposited in smart contracts, where it can potentially generate interest in DeFi protocols, has been on the rise since June.
Over the course of a few months, the supply of ETH in smart contracts went from 11% to 17%, while the ETH in exchanges went from 19,000 ETH to 15,500.
Until last month, that is. October showed a slight change: while ETH continued to leave centralized exchanges, the number of deposits for smart contracts remained relatively stable; DeFi has stopped growing.
Pedro February, said the founder of Bityond and a researcher at Quantum Economics Decrypt, “What I suspect is happening is the same thing that is happening with Bitcoin: essentially, we are seeing an increasing number of coins being mined from exchanges in private wallets.”
He continued: “Most likely, these entities have no interest in selling in the short term.”
This, of course, has an impact on the markets as a decrease in supply can generate an increase in prices, as there is more competition among buyers. This is what Chainalysis reported today it is happening with Bitcoin.
But it’s not quite to the same extent. This is because, although the percentage of ETH in smart contracts has stabilized, it is still close to all-time highs. According to Chainalysis, “Ethereum … is becoming more liquid, moving into portfolios that not only trade frequently, but are also quite new.”
Over the past eight months, he said, “over 8 million ETH has been transferred into liquid portfolios less than a month old at the time of acquisition.”
Of course, traders could let their ETH settle into the long-term DeFi smart contract. Regardless, with the price of Ether reaching levels not seen since 2018, holders can take a break as long as the price continues to rise.
Disclaimer
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.
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