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Bitcoin and Ethereum Could See a Liquidity Crisis

Key Takeaways Exchange balances have seen a steep drop in the last two days. Research from Jarvis Labs analyst Benjamin Lilly points to an imminent liquidity crisis of Ether on exchanges. In comparison to the previous two bullish cycles, the market flow data points to more upside. Share this article

Bitcoin and Ethereum are being withdrawn from exchanges in large amounts. In light of that trend, on-chain analysts suggest that the prices of both cryptocurrencies could rise higher.

Visible Signs of a Bubble

In a bullish phase, the market runs hot and cools down in cycles. Altcoin prices rise and enter a bubble-like market. Traders recognize tops and correction cycles, each time forming higher highs and lows. 

Eventually, the market runs out of steam, and the local top becomes a generational top. During this upthrust, liquidity flows towards altcoins, causing abnormal gains with a lack of fundamentals. 

These are returning signs of a bubble as altcoins exhibit irrational exuberance. For instance, yesterday, the Stellar blockchain went down for a brief period, but its native token XLM held onto the previous day’s gains of 25%. Meanwhile, XRP has reached $1 despite its pending securities case filed by the SEC. 

Still, on-chain analysis of the top two cryptocurrencies—Bitcoin and Ethereum—suggests that the market has not yet reached its top.

Ethereum Liquidity Crisis

Benjamin Lilly of on-chain research firm Jarvis Labs mapped the correlation between reducing exchange supply and ETH price. According to Lilly, ETH “is gearing up for a historic run.”

He found that in 2017 exchanges saw 44% lesser Ethereum balances, and users withdrew ETH to personal wallets. This time around, exchanges have witnessed a 25% reduction in supply. Moreover, the total ETH supply is 38% more than the last time, representing larger overall supply-side liquidity. 

Ether supply moved off exchanges. Source: Jarvis Labs

Furthermore, exchanges a...

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