In June, the balances of Bitcoin (BTC) and Ether (ETH) on exchanges witnessed a substantial decline as more cryptocurrency holders opted for self-custody solutions, according to a report by investment bank Goldman Sachs. The report analyzes on-chain data and suggests that regulatory concerns and potential security issues related to hacking and theft are driving investors to move their holdings away from exchanges.
One of the contributing factors to the decline in exchange balances is the availability of self-custodial solutions for staking ETH. Investors are increasingly choosing to withdraw their tokens from exchanges and stake them in their own wallets, taking advantage of the potential rewards offered by Ethereum’s transition to a proof-of-stake consensus mechanism. This trend has resulted in the supply of BTC on exchanges approaching its lowest level since December 2022. Similarly, the supply of ETH on exchanges has reached levels not seen since May 2018, indicating a significant shift towards self-custody.
The Goldman Sachs report also highlights a record month for Bitcoin miners’ inventory sales in June. Miners took advantage of Bitcoin’s strong performance and increased their BTC inflows to exchanges by nearly double, amounting to $99 million. During this period, the price of Bitcoin rose by approximately 12% to $30,472 as of the end of the month.
Another significant development in June was the return of transaction fees to normal levels after the network congestion experienced in May. This normalization resulted in a rebound in monthly address activity for both Bitcoin and Ether. Bitcoin witnessed a 15.5% increase in monthly address activity, while Ether saw a notable surge of 37.5%. The decline in transaction fees and congestion alleviation likely contributed to increased user activity on the respective networks.
The report by Goldman Sachs also observed a significant decline in average daily ETH burnt and average daily fees on a month-on-month basis. ETH burnt refers to the amount of Ether permanently removed from circulation through transactions on the Ethereum network. The decline in average daily ETH burnt by 65.1% and average daily fees by 63.3% indicates a more sustainable fee structure and improved efficiency in the Ethereum network.
Lastly, the report highlights an increase in new on-chain activity for both Bitcoin and Ether. The daily average count of new addresses rose by 9.8% for Bitcoin and 48.2% for Ether compared to the previous month. This uptick in on-chain activity suggests growing interest and engagement within the crypto ecosystem, as more users are actively participating in transactions and creating new addresses.
Based on these developments, it appears that the decline in Bitcoin and Ether supply on exchanges, coupled with increased on-chain activity, may indicate the return of a bullish market sentiment. However, it is important to note that cryptocurrency markets are inherently volatile, and market conditions can change rapidly. Investors should stay informed about the evolving landscape, including regulatory developments and market trends, to make well-informed decisions.
The decline in exchange balances and the increasing popularity of self-custody solutions highlight the importance of security and control over one’s digital assets. As investors become more educated about the risks associated with storing cryptocurrencies on exchanges, they are seeking ways to maintain ownership of their tokens and reduce the reliance on third-party custodians. This trend aligns with the principles of decentralization and the original vision of cryptocurrencies as a means of individual empowerment and financial sovereignty.
In conclusion, the decline in Bitcoin and Ether supply on exchanges, along with increased on-chain activity, suggests a shifting landscape in the cryptocurrency market. The rise of self-custody solutions and the focus on security and control over digital assets demonstrate a growing awareness among investors. As the market continues to evolve, it is essential for investors to stay vigilant, adapt to changing conditions, and make informed decisions to navigate the dynamic world of cryptocurrencies.
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