Ethereum Health Check


One of the most descriptive metrics when looking on-chain is always net flows to exchanges. Net outflows is typically a bullish sign, with ETH leaving exchanges. On the converse, net inflows to exchanges often signals selling pressure.

We have had net outflows from exchanges for nine consecutive days, although not on a level that is too notable. Nonetheless, it can be seen as a nice sign that investors are accumulating as the price crabs sideways.

Netflows from exchanges of Ethereum YTD


With the Ethereum Merge seemingly imminent, no analysis of the cryptocurrency would be complete without looking at the staking contract. The graph below shows that there is now 11.8 million ETH tokens, worth over $35 billion, locked up in the staking contract.

While the temptation is to declare this a bullish sign for the network, and it certainly is in the long term, I’m not so sure about the short-term effects. This $35 billion of locked tokens represents nearly a tenth of the entire supply. Once the Merge goes live, this will all be flooded back onto the market, fully liquid with investors able to sell as they please.

And while a lot of the staked tokens currently are in liquid varieties – such as Binance, where I am staking my ETH, receiving tradable BETH tokens in return – the reality is still that this is not a straight sale and does create friction. Once the network opens up, it does become inherently easier to trade, and there is also no longer the narrative of holding ETH in the hope of the Merge spiking its price.

While the Merge is unquestionably long term for the prospects of the network as a whole, a lot of the action is likely priced in at this point, meaning once it goes live, it could be a “buy the rumour, sell the news” type of event.

Long Term Focus

With the Russian invasion, inflation fears and Fed hiking narratives all haunting markets to open the week, there’s nothing to suggest that Ethereum has cause for concern in the long term. The average holding period per token is now up to 1.7 years, while there are nearly 75 million addresses on the network with a positive balance.

Daily active addresses are consistently hovering around half a million, highlighting quite how many people are now using ETH. With network effects like these, if the Merge has any tangible effect on fees (which is should), then there’s reason to be very optimistic about the future.

Active and new addresses on Ethereum since the start of the year


So, to close off, while Ethereum’s price action is impossible to predict in the short-term, especially in the turbulent economic times we find ourselves in, the long-term picture remains bright. There are 75 million addresses holding a balance on the network, half a million of which are active daily. Netflows from exchanges remains negative, and investors are holding their tokens longer and longer. There is also nearly 10% of the supply locked up in the staking contract.

The usage and activity on the network are all really stout, and to sign off, Ethereum is in really good shape ahead of the Merge. While it may not provide an immediate catalyst to the price, if you remain patient and are confident in the fundamentals here, it’s only a matter of time before the price starts to climb.

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