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Ethereum: One major misconception that will not dictate its short-term trend

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Ethereum is the king of altcoins and there is no doubt about that. Over the past week, certain on-chain metrics have moved in its favor and over the long-term, its price credentials promise higher returns. However, it is currently surrounded by an air of invincibility, one which suggests that ETH might avoid any short-term corrections as well.

That is unlikely to be true, however. In this article, we will take a deeper look into the supply held by top addresses and how bearish diversions can be created, irrespective of supply changes.

Lower supply on exchanges doesn’t mean fewer chances of correction

Source: Santiment

According to Santiment, the ETH supply held on exchanges has dropped down to 15%. Last year, during the same time, the figure was around 23%. It can be contemplated that the number of ETH moving into smart contracts, DeFi protocols, cold wallets, and staking addresses, improves its market stability and decreases selling pressure.

Now, technically, that makes complete sense since a lesser liquid market supply would mean demand will organically increase. However, it doesn’t really eliminate bearish concerns in the short term.

How so? Well, because supply held on-chain remains high enough to create a divergence on the charts.

Source: Glassnode

According to Glassnode, the percentage of ETH supply held by the top 1% addresses is close to 96%. It hasn’t gone down under 95% since February 2018 and indicates that a few thousand addresses hold a significant amount of Ether. Now, it is important to note that these addresses may belong to multiple individuals, entities, or funds.

One particular address does not constitute a single person. However, the fact that some of the addresses can fuel a price shift is also true. A group of investors might be sitting on tremendous profits, and a collective decision to take returns can still move the market.

Does it affect the decentralized nature of Ethereum? Technically, no.

Source: Glassnode

Ethereum’s Herfindahl Index has maintained lower levels since the beginning of January 2016. A lower Herfindahl index suggests that ETH is more evenly distributed across addresses. Exchange addresses, smart contract addresses, and other special asset-specific addresses (e.g. team fund addresses) are excluded.

Staying on topic

The crux of the story remains the same. Over the short term, Ethereum’s low supply held on exchanges doesn’t eliminate correction possibilities since market structure reversal and profit-taking are part and parcel of a volatile market.

It is absolutely necessary to invest in the market in accordance with risk adjustment since no digital asset is resistant to market sell-offs.


Biraajmaan covers market trends of major cryptocurrencies. As a graduate in engineering, his interests lie in Blockchain technology. With over a year as a journalist, his articles focus on US and UK markets.
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