Ethereum reserves on crypto exchanges have now hit a new low for the first time in over two years. According to CryptoQuant, the number has dropped from 26 million in June last year to less than 21 million in July 2021. This is apparently in line with the rise in the Ethereum price. Over the months, as the price of ETH has risen, exchange reserves have steadily declined.
Exchange reserves are the available supply for selling, buying altcoins and margin trading on exchanges. Now, less and less of this amount is available on exchanges.
The Rise of Ethereum Staking
With the announcement of ETH 2.0 came the opportunity for investors to stake their coins and receive returns in return. Ethereum's shift from Proof of Work to Proof of Stake means that the network no longer needs validators. Validators are the medium for confirming transactions on a proof-of-stake network. This means that people could conveniently run their own nodes.
Interestingly, you "only" need 32 Ethereum coins to run your own node and be a validator. Considering this, more and more investors are taking the option to stake themselves. This method is supposed to be more secure, as you have access to your own private keys when staking - as long as you know what you're doing and you're doing it right.
This has led to users now taking their coins off exchanges and putting them in their own private wallets. As long as they have enough coins, they can set up their own nodes and stake their ETH on their own terms.
This ensures that only the investors with a smaller amount of coins leave their Ethereum on the exchanges. So in one year, exchanges have collectively lost over 5 million coins from their reserves. And that number is expected to likely continue to rise as more investors start staking.
A staggering 6 million ETH has now been staked in ETH 2.0. The number of validators on the network has now surpassed 179,000 and rising.
Less trust in crypto exchanges
There is a popular saying among crypto investors. "Not your keys, not your coins". This saying didn't just come out of nowhere. Your coins on exchanges are technically not yours because you don't own the keys to the coins.
This means that if something were to happen on the exchange, you would be out of luck, as attackers could move your coins. This is the reason why long-term owners do not leave coins on exchanges. Coins are only left on exchanges to be traded or used in the short term. Investors transferring their Ethereum coins to wallets they control could partly explain the decline in exchange reserves.
The more people understand how the market works, the more they understand the best way to store their coins. And that's in a wallet where you have control over the keys.
Wallets like Ledgers give you seed phrases. Users can write down their seeds - and they're the only ones who can access them.
Over 24,000 users lost at least 650,000 bitcoins in the "Mt. Gox" attack in 2014. None of those affected were ever able to get their coins back.