Based on cryptocurrency market data, Ethereum flows have become more concentrated since DeFi and decentralized exchanges were established, indicating the dominance of a few insiders.
Exchange flows of the two largest cryptocurrencies
53% of all Ethereum deposited on exchanges is accounted for by the top ten users, compared to 22% in Bitcoin.
It sounds too corny, but cryptocurrencies have had another volatile week. The sell-off in the broader financial markets, triggered by news of the US administration’s plans to raise the capital gains tax, has spread to the cryptocurrency markets as well. As a result, Bitcoin fell to $47,500 and then rose to $56,500. Ethereum, on the other hand, has grown strongly thanks to high demand for DeFi. The second-largest cryptocurrency has reached another all-time high, around $ 2,800.
In addition to the overall recovery in financial markets, another factor that could help cryptocurrency sentiment was a report that JPMorgan is preparing to offer an actively managed Bitcoin fund to its wealthiest clients, available as early as this summer in the Bitcoin institutional store. NYDIG acts as a custodial provider for JPMorgan Chase.
Today’s discussion is centered around the exchange flows of the two largest digital coins. Exchange inflows have become a carefully monitored metric for understanding how much cryptocurrency will be sold. According to Intel’s Chainalysis Market, 81% of Bitcoin exchange inflows have come from exchanges since the beginning of 2020, compared to 61% of Ethereum exchange inflows over the same period.
The graph on the right (top) shows that exchanges have far more active deposit addresses for Bitcoin in general than for Ethereum. Since the beginning of 2020, an average of 132 thousand users have made BTC to the exchanges daily, compared to 23 thousand users per day. Thus, BTC has 5 times more in-network exchange users than Ethereum.
For the analysis, daily users are taken as the upper bound, given that a user can have multiple deposit addresses. In addition, the number of users is taken as a lower bound, since the vast majority of users of a centralized exchange interact only with the exchange, never transferring assets to the blockchain itself.
Ether flows dominate
The most notable observation in this analysis was the concentration of inflows on the exchange of Ethereum by multiple users: since June 2020, the ten users who contribute the most Ethereum to exchanges are responsible for 53% of all deposited Ethereum, compared to 22% for the top ten Bitcoin depositors.
Before DeFi (June 2020) and decentralized exchanges were created, the concentration of inflows to the main deposit addresses was the same for Bitcoin and Ethereum, as shown in the left chart above.
The growing concentration of Ether inflows to exchanges suggests that competition among Ethereum sellers on exchanges is much less than that of Bitcoin. The fact that competition between Ethereum sellers has declined as DeFi and decentralized exchanges have grown also suggests that these markets are more dominated by a few insiders than centralized exchanges.