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

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

The launch of spot ETFs prompts withdrawals

Experts attribute the declining exchange balances to the recent approvals by the Securities and Exchange Commission (SEC) of ETF products for Bitcoin and Ethereum's 19-b filings.

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

While spot Ethereum ETFs have yet to commence trading, the anticipation among investors has triggered substantial withdrawals. According to CryptoQuant, 777,000 ETH, amounting to about $3 billion, have been withdrawn from exchanges since the SEC's approval.

Furthermore, the option to stake ETH has contributed to the decrease in its exchange balance. Nansen reports that 32.8 million ETH, equivalent to 27% of its total supply, are currently staked to support the network.

Implications of a potential supply crunch

Continued trends of declining exchange balances could lead to a demand surge for Bitcoin and Ethereum, potentially resulting in a supply crunch. Experts warn of a "supply squeeze" and speculate on the potential for significant price movements.

In past instances, withdrawals of digital assets from exchanges have signaled investor intent to hold rather than sell, indicating optimistic sentiment and expectations of future market growth. A supply squeeze could exert upward pressure on prices by restricting available supply, potentially leading to substantial price increases if accumulation trends persist.