ETH exchange balances hit a historic low. Will the supply squeeze trigger a price reversal?

[BlockBeats] On December 7, a noteworthy signal emerged: Ethereum’s inventory on centralized exchanges has dropped to an all-time low.

The numbers are quite dramatic—last Thursday, ETH on exchanges accounted for only 8.7% of its circulating supply, a level not seen since Ethereum launched in 2015. By Sunday, it had slightly rebounded to 8.8%, but it’s still lingering in an extreme range. Even more astonishing, from July until now, the amount of ETH on exchanges has been more than halved, plunging by 43%. Meanwhile, institutions and digital asset custodians are clearly accelerating their accumulation.

Research firm Milk Road made this assessment: “ETH is entering its tightest supply situation in history—something unprecedented.” By comparison, Bitcoin’s inventory on exchanges is still at 14.7%, a significant difference.

Why is this happening? It’s because a large amount of ETH is locked in places that are hard to liquidate quickly: staking and restaking protocols, Layer 2 ecosystem activities, custody vaults, collateral loops, long-term holding accounts… The common characteristic of these scenarios is poor liquidity.

Milk Road’s logic is straightforward: market sentiment can be bearish, but sentiment does not change supply structure. When market sentiment and supply reality diverge, price ultimately follows supply. Analyst Sykodelic also added a technical detail—Ethereum’s energy wave indicator (OBV) has already broken through resistance, but the price is being suppressed in the short term. Such divergence often means hidden buying pressure is building up, possibly setting the stage for future moves.