Goldman Sachs, one of the world’s largest financial institutions, has recently published a report revealing that Bitcoin (BTC) and Ether (ETH) prices on exchanges have come under severe pressure during June. The reasons for this decrease may be varied, including the increase in regulations and cybercrime concerns that compelled cryptocurrency holders to choose self-destructing solutions. Let us take a deeper look at this report and examine its implications for the decrease in the exchange supply.
Bitcoin and Ether Supply Decrease
According to Goldman Sachs’ report, the supply of Bitcoin, the largest cryptocurrency by market capitalization, dropped by 4% in June. This fall has brought supply closer to the level seen in December 2022, which was even lower than November 2020, a little more than before the beginning of the 2021 bull market. At the same time, a more pronounced decrease of 5.8% has been experienced in supply of ether since May 2018 and is now lower than at that date last year.
Factors Driving the Decline
Goldman Sachs notes that several factors have affected the cryptocurrency market, which has led to this reduction in on exchange supply. Firstly, regulatory challenges have emerged in the major central exchange spot markets with an adverse impact on investors. These regulatory headwinds have made asset holders more cautious, prompting them to prioritize self-custody solutions for their cryptocurrencies.
Secondly, the report highlights the ongoing concerns surrounding cyber hacks and theft in the crypto market. The importance of the adage “not your keys, not your coins” has been underlined by these events, highlighting the preference of crypto holders to have their own custody. Investors have been encouraged to take control of their personal keys and shift holdings into safer wallets because of the risks associated with holding assets on exchanges.
The declining supply of Ether on the exchange is also influenced by a rise in staking, an activity that allows investors to receive rewards and take active part in Blockchain networks. The enablement of staked Ether withdrawals has led to investors choosing to stake their Ether rather than passively hold it on exchanges. This shift demonstrates a growing interest in participating in the Ethereum network’s consensus mechanism and earning staking rewards.
Miners Take Advantage of Strong Performance
The report notes that despite a drop in the supply of Bitcoins on exchange, June was marked by an unprecedented sale of miners’ inventories. The miners took advantage of the strong performance of Bitcoin and sold their holdings, with the total monthly inflows of Bitcoin into exchanges almost doubling from May to reach USD 99 million. According to TradingView’s data, the increase in miners’ inventory sales is consistent with price appreciation of about 12% for bitcoin over that period.
Rebound in Transaction Activity
In June, both Bitcoin and Ether saw an increase in monthly address data as transaction charges returned to normal levels after the network congestion observed in May. As for Bitcoin, monthly address transactions increased by 15.5% while eether saw a jump of 37.5%. In addition, on a month to month basis, the average daily burn rate decreased by 65.1% and the average daily fee decreased by 63.3%, indicating a normalization of network use.
Increased On-Chain Activity
The report also highlights an increase in new on-chain activity during June. Compared with the previous month, the daily average of new addresses in both bitcoin and ether increased by 9.8% and 48.2% respectively. The fact that there has been an increase in onchain activity shows growing interest and engagement among the ecosystem of cryptocurrencies, which will be accompanied by more participants joining it.
Goldman Sachs’ report sheds light on the declining supply of Bitcoin and Ether on exchanges during June. Cryptocurrencies holders were moving their assets away from exchanges due to factors such as increased regulation, cybercrime concerns and the appeal of self custody. At the same time, Bitcoin miners took advantage of a strong performance by bitcoin to sell their stocks. It will be interesting to see how these supply developments affect the future price trends for bitcoin and ether, as well as market sentiment in general, when the market adapts to changing dynamics.
Canny, W. (2023, July 4). Bitcoin, ether supply on exchanges fell in June: Goldman Sachs. CoinDesk Latest Headlines RSS. https://www.coindesk.com/markets/2023/07/04/bitcoin-ether-supply-on-exchanges-fell-in-june-goldman-sachs/