Kraken On-Chain Analysis: November 2021 Recap

Kraken - one of our favourite exchanges - has released their On-Chain Digest report for November 2021: Ain't Over Til It's Over.

A few highlights on the report for November:

• Supply held on exchanges is decreasing: the amount of BTC sitting on exchanges fell by 9.6% to a 3-year low of ₿2.43M.
• ETH supply on exchanges has dropped by 34% since the August 2020 high of Ξ22.58M
• Ethereum transaction fees have more than doubled with gas fees averaging US$52.70 on Nov 4th.
• On-chain indicators, BTC'a Reserve Risk and ETH's MvRV Z-score indicates that both assets have not reached overbought territory despite hitting record highs.
• Litecoin LTC, also referred to as Digital Silver, on-chain data coincides with a parabolic uptrend seen in the past.

The supply shock trend continues as outlined in the October digest, supply on exchanges continues to dwindle for both Bitcoin and Ether. Coins exiting exchanges is a bullish indication that users may be moving funds into cold storage for long-term holding. However, moving off an exchange does not necessarily mean it goes directly to cold storage. Users could be moving their crypto assets to use in purchases and transactions or to interact with DeFi lending platforms. Moving off an exchange to interact with web3 and other DeFi platforms is especially true for Ethereum which is where we see a greater rate of outflow in exchanges than Bitcoin.

Higher activity levels in Ether is derived from the explosive growth of NFTs and DeFi Dapps and is evident with the steady rise in gas fees being paid for transactions on the Ethereum network. There is a high level of dissatisfaction with the absorbent gas fees as some argue it creates a barrier of entry for the normal masses where only the rich can participate. Take for example, when swapping for an ERC-20 token, the gas fees sometimes costs as much as the value of the token being swapped!

Ethereum's inability to grapple with greater network demand and high transaction costs could drive users to other cost-efficient blockchains. Solana and Avalanche come to mind as they have both broke the top 10 by market cap this year.

Bitcoin's hashing power has risen to a 7-day moving average of 166.1EH/s, just less than 9% short of an all-time-high of 180.8EH/s set on May. The recovery of mining power and a record-breaking 65.8% increase in mining difficulty suggests miners have completed migration overseas after the China ban on everything crypto related.