The actions are not particularly shocking given that FTX, the second-largest exchange in the world, was previously thought to be virtually impervious to attack. Given that the exchange didn’t have enough reserves to withstand the ensuing bank run, its collapse shows that it wasn’t too large to fail.
Investors in Bitcoin have been transferring their funds away from exchanges and into self-custody wallets during the past week or two.
According to analytics service Glassnode, there has been the largest increase in on-chain wallet activity in Bitcoin history.
In direct response to the failure of FTX, #Bitcoin investors, of all wallet cohorts, have made a distinct behavioural shift towards self-custody.
From Shrimp, to Whales, #Bitcoin onchain balances are on the rise🔵
— glassnode (@glassnode) November 14, 2022
Hodlers of Bitcoin Wary of CEXs
Glassnode noted that the aggregate BTC balance on exchanges had one of the largest net drops ever in its Nov. 14 “Week On-chain” report. In just seven days, the number of BTC on them decreased by 73,000.
Only in April and November 2020, June/July 2022, and now in November 2022 have outflows of more than 106,000 BTC per month been recorded.
Similar findings were made with Ethereum, which saw over 1.1 million ETH leave centralized exchanges in the previous week. Since the ‘DeFi Summer’ spike in ETH demand in September 2020, it was the highest monthly balance loss.
Despite the fact that several of the biggest exchanges, like Binance and Kraken, have offered proof-of-reserves, cryptocurrency investors are still wary of them.
Stablecoins have been pouring onto exchanges over the past week or two, and the opposite has occurred. Last week, the total value of stablecoin reserves held by all exchanges reached a new record high of $41 billion.
Supplies and reserves for Circle (USDC) and Tether (USDT) have somewhat decreased, but Binance USD (BUSD) has surged as the exchange combines its reserves.
A lot of these stablecoins have been taken out of smart contracts at a pace of $4.63 billion each month, according to Glassnode.
“This acts to highlight how acute the demand for immediate dollar liquidity has become.”
Demand for the asset has also surged due to a strong dollar as stablecoins are created from cryptocurrency.