Ether (ETH), the second-largest cryptocurrency by market capitalization, has witnessed a consistent decrease in exchange supply over the last six months after the Merge event, which upgraded the Ethereum network from proof-of-work (PoW) to a proof-of-stake (PoS) network in September 2022.
The declining trend in the available ETH on exchanges has persisted since the Merge, with a significant 37% reduction in ETH on exchanges, according to on-chain data from crypto analytics firm Santiment. This reduction in ETH on exchanges is a promising indication as it suggests a reduced availability of ETH for trading or selling.
Before the Merge, exchanges had a total of 19.12 million ETH valued at $31.3 billion in September. As of the second week of February, this amount has declined to 13.36 million ETH valued at $19.7 billion.
The imminent Shanghai upgrade is fueling the trend of increased self-custody and staking among ETH traders, leading to a significant portion of the ETH supply being moved into non-exchange wallets. Scheduled for March, the Shanghai hard fork promises to bring network enhancements and features that enable stakers and validators to withdraw their holdings from the Beacon Chain.
As of now, 16 million ETH, which represents 14% of the total supply, has been staked on the Beacon Chain, equating to approximately $25 billion at current market rates. This substantial amount of staked ETH will gradually become liquid after the hard fork.
Additionally, the Ethereum Improvement Proposal (EIP)-1559 introduced a fee-burning mechanism through the London upgrade, leading to a deflationary model that has contributed to a constant decline in ETH supply held on exchanges and overall market supply.
According to current estimates, the Ethereum London upgrade, implemented in August 2021, has resulted in the burning of approximately 2.9 million ETH, which equates to a present-day valuation of $4.5 billion. This figure highlights the significant impact of the upgrade on the cryptocurrency market.