Ethereum supply drops back to 2016 levels! Massive liquidations combined with liquidity drought—will ETH experience even greater volatility?

As multiple high-leverage failure cases impact market sentiment, Ethereum (ETH) is facing a simultaneous contraction in confidence and liquidity. On-chain data shows that the total ETH held on exchanges has dropped to approximately 16 million, returning to mid-2016 levels. This phenomenon occurs after Ethereum has grown into a trillion-dollar ecosystem, making the market structure particularly tense and laying hidden risks for significant price volatility.

One of the triggers for this round of turbulence is a massive leverage loss from Trend Research. Led by Jack Yi, the institution previously built a long position worth about $2.6 billion through decentralized lending protocols, betting on ETH price increases. However, after the market weakened, the position was fully liquidated, resulting in a loss of approximately $750 million. On-chain records show that this month, they sold all ETH assets to repay debts, and their wallet is now nearly empty.

In contrast, the circulating supply of ETH on exchanges continues to decrease, while off-exchange channels have grown but are insufficient to fill the liquidity gap in the mainstream market. By comparison, Bitcoin’s exchange balances have returned to levels seen around 2019, while ETH has followed a completely different trajectory. This means that once large funds start selling, the price discovery process could become even more intense.

Not all participants are choosing to exit. Supported by Tom Lee, Bitmine increased its holdings by about 20,000 ETH on February 8, worth approximately $41.98 million; additionally, addresses related to the Infini vulnerability absorbed 6,316 ETH near $2,109, indicating that some funds are still positioning at low levels.

From a technical perspective, ETH is currently around $2,077, down approximately 37% from the previous high near $3,300. The RSI is around 31, with bears still dominant, and trading volume has increased during the decline phase. Against the backdrop of ongoing supply contraction and diverging sentiment, discussions around topics such as “Ethereum supply decline impact,” “ETH liquidity exhaustion risk,” and “Ethereum price volatility outlook” are expected to continue heating up.