Since the completion of the Merge network upgrade six months ago, the amount of ether (ETH), the second largest cryptocurrency in terms of market value, has been steadily declining on exchanges. In September 2022, the Ethereum network underwent a significant upgrade from a Proof-of-Work (PoW) network to a Proof-of-Stake (PoS) network during an event called the Fusion.

The amount of accessible ETH now languishing on exchanges continues to decline, as shown by on-chain data published by cryptocurrency analytics firm Santiment. Since the Merger, the amount of ETH available on exchanges has decreased by 37%. It is a positive indicator when there is a steady decline in supply on the exchanges. This is because there is less ETH available on the market to buy and sell.

Prior to the Merger, there was a total of 19.12 million ETH worth $31.3 billion trading hands on exchanges in the month of September. As of the second week of February, the number dropped to 13.36 million ETH, which corresponds to a value of $19.7 billion.

A significant part of the Ethereum supply is now being transferred to self-custody as the Shanghai update approaches and many traders are choosing to stake as an investment strategy. The next version of Ethereum, known as Shanghai, is expected to launch in March. Stakeholders and validators will be able to remove their shares from the Beacon Chain after the Shanghai hard fork, which will combine more upgrade hints for network advancements and enable this functionality.

Right now, 14% of the total supply, or 16 million ETH, is staked on the Beacon Chain. This amounts to almost $25 billion at currently prevailing prices, and is a significant amount that will gradually become liquid following the Shanghai hard fork.

Since turning deflationary after the London update, the total amount of ETH in the market as a whole has also decreased, in addition to the continued decline in the amount of ETH held on exchanges. The fee reduction mechanism that was first implemented as part of the Ethereum Improvement Proposal (EIP)-1559 is where the deflationary model can be found.

Since the London update in August 2021, a total of 2.9 million ETH has been burned, which would have been worth around $4.5 billion in today’s currency.