Bitcoin and Ethereum holdings on centralized exchanges have reached historic lows following the launch of cryptocurrency spot exchange-traded funds (ETFs) in the United States.

Based on Glassnode data, Bitcoin balances on exchanges have dropped to 11.6%, the lowest since December 2017, while Ethereum balances are even lower at 10.6%, the lowest since October 2015.

Withdrawals spurred by spot ETFs

Analysts attribute the decrease in exchange balances to the Securities and Exchange Commission's (SEC) approval of Bitcoin ETFs and Ethereum's 19-b filings.

HeyApollo data shows that Bitcoin spot ETFs have accumulated 857,700 BTC, valued at $58.5 billion, in just five months. BlackRock’s IBIT ETF leads this accumulation with around $20 billion in assets, followed by Fidelity’s FBTC with approximately $11 billion.

While spot Ethereum ETFs have yet to commence trading, investor anticipation has led to significant withdrawals. According to CryptoQuant, 777,000 ETH worth about $3 billion have been withdrawn from exchanges since the SEC’s approval.

Staking options also impact Ethereum's exchange balance, with Nansen reporting that 32.8 million ETH, or 27% of its total supply, are currently staked to support the network.

Implications of a potential supply crunch

Continued declines in exchange balances could signal heightened demand for Bitcoin and Ethereum, potentially resulting in a supply crunch.

In a recent statement, BTC Echo editor Leon Waidmaan cautioned investors to prepare for a "supply squeeze" and potential market movements.

Historically, decreasing digital asset balances on exchanges indicate investor intent to hold rather than sell, reflecting optimistic sentiment and expectations of future price appreciation. A supply squeeze could exert upward pressure on prices by limiting available supply, potentially leading to substantial price gains if current accumulation trends persist.