On-chain data shows that Ethereum has recently seen huge outflows of funds from the exchange, but developments related to Tether (USDT) could be a bearish headwind for the market.
Ethereum and Tether have recently seen withdrawals from exchanges
As chain analytics firm Santiment explains in a up-to-date article fasting on X the market ends July on a mixed note in terms of exchange flows. The measure of interest here is the “Exchange Flow Balance”, which measures the net amount of a given asset entering or leaving portfolios linked to centralized exchanges.
When the value of this metric is positive, it means that inflows to these platforms are currently exceeding outflows. Such a trend means that there is currently a demand for resale of assets among investors.
On the other hand, a negative rate means that holders are making net withdrawals from exchanges, potentially holding their coins for the long term.
What implications any of these trends have for the broader market depends on the exact type of cryptocurrency in question: stablecoin or floating asset. In the context of the current topic, Santiment cited data for Ethereum and Tether, meaning that both types of coins are relevant here.
Below is a chart provided by the analytics firm that shows the trend in the stock flow balance for the two assets over the past few months:
As you can see from the chart above, the exchange flow balance has recently been sharply downward for both Ethereum and Tether, indicating that investors are moving huge amounts of these coins into their own deposits.
In the case of volatile assets, asset turnover can have a negative impact on its price, so an enhance in the currency reserve can be a bearish signal. On the other hand, a negative balance of currency flows can be bullish because it means that the potential “sell supply” of the coin is decreasing.
During the latest outflow, investors withdrew 80,763 ETH (nearly $268 million) from these platforms, the largest outflow jump in five months. As a result, Ethereum experienced a significant drop in sell supply.
In the case of stablecoins, an influx of funds into an exchange also means that investors want to exchange the asset, but since these tokens by definition have a “stable” value of around $1, such transactions have no impact on their price.
That doesn’t mean they have no market relevance, though, as investors typically apply stablecoins to buy volatile assets like Ethereum, so huge exchange inflows of stablecoins like Tether could be beneficial to these other cryptocurrencies.
From this perspective, the USDT and other stablecoin reserves can be considered a potential “buy supply” for volatile cryptocurrencies. USDT recently recorded net withdrawals of $346 million, meaning that this buy supply has declined.
“This reflects lower purchasing power of future purchases from traders, which is generally a necessary ingredient for prices to rise in the long term,” Santiment notes. It now remains to be seen how the Ethereum price will develop in the near future, given that the market has seen both increases and decreases at the same time.
ETH Price
At the time of writing, Ethereum is trading around $3,300, down over 3% over the past week.
Featured image from Dall-E, Santiment.net, chart from TradingView.com
