The Ethereum exchange balance has reached its lowest level in five years, as the amount of available Ether held on crypto exchanges dropped to 17.86 million on May 26. This decline in exchange supply is the most significant since April 2018. According to data from Glassnode, only 14.85% of the total Ether supply is currently held on centralized exchanges, a decrease from the 25-26% held during the bull run in 2021. The decrease in ETH supply started in September 2022 and was further affected by the FTX crisis in November. Additionally, the number of Ethereum wallet addresses holding more than 100 ETH has also decreased to a six-month low.

Two main factors contributed to the decline in ETH balances on centralized exchanges. Firstly, the collapse of the FTX crypto exchange prompted many users to transfer their crypto assets from exchange wallets to self-custody wallets. Secondly, the Shapella upgrade played a crucial role. The upgrade allowed numerous validators to withdraw their staked ETH, but contrary to expectations, only a minority of validators decided to unstake their ETH, while the majority only withdrew their staking rewards.

The movement of assets away from exchanges is seen as a positive signal, indicating that traders are not intending to sell at the current price. In Ethereum’s case, the prominent reason for the decreasing exchange supply is the restaking of ETH. Major crypto exchanges such as Binance, Bitfinex, and Kraken experienced a significant outflow of ETH from their exchange wallets due to the Shapella upgrade, contributing to the current decline in balance. Following the Shapella upgrade, the amount of ETH being staked exceeded the amount being withdrawn, and a Glassnode report estimated that less than 1% of staked ETH was expected to be sold. As a result, a substantial portion of ETH that moved away from centralized exchanges was returned to staking.