Table of Contents
main conclusions
Exchange balances are down by nearly 200,000 bitcoins compared to pre-FTX as customers have lost all confidence in exchanges. . Terra collapsed in May, but as it was a DeFi protocol, trust in centralized entities had not yet been broken at that point Only time will tell how bad the contagion of FTX bankruptcy is Trust in cryptocurrency exchanges is at the lowest level all-time low. It’s not hard to see why, as the FTX meltdown sent shockwaves throughout the industry. Less than a month ago, FTX was considered one of the safest exchanges on the market.
Customers remove bitcoins from FTX
The numbers confirm this. We at the Bitcoin Guide take a look at the chain, where we saw Bitcoin exiting exchanges at unprecedented speed after the FTX bankruptcy. In the 27 days since the FTX story began to leak, a net worth of nearly 200,000 bitcoins has been withdrawn from exchanges. It looks like thousands of Bitcoin holders are running for the hills with their Bitcoin, pulling it into the safety of cold storage. “FTX was tier 1 royalty when it came to exchanges. Its collapse scared off investors, as it should. Exchange transparency is incredibly low and the reality is that it is almost impossible to know what is going on behind the scenes. The movement of Bitcoin off these exchanges shows that customers are taking notice,” said Max Coupland, director of CoinJournal. Sadly, the FTX scandal is far from the only one that has rocked cryptocurrencies this year. So how does the customer reaction differ this time around?
Celsius brought similar panic
When Celsius sent an email to customers on Sunday, June 12, 2022 that it was suspending withdrawals on its platform, it was a dagger to the heart of any investor holding assets on the platform. While these assets were obviously inaccessible, customers soon panicked that funds held on other lending platforms could soon be under threat as contagion continued to spread across the industry. The main difference here was that exchanges were not under pressure. However, customers still panicked, as shown in the chart below. Exchange balances were reduced by 128,000 bitcoins in the following month, with over 100,000 leaving in the 5-day period shortly after Celsius was declared insolvent.
Earth’s death spiral was different
The third shocking variable to rock cryptocurrency markets this year was Earth’s death spiral in May. In fact, this is where it all started. Celsius went down with the ensuing contagion (something I got caught up in as well) – alongside Three Arrows Capital, Voyager Digital, and several other companies. Notably, this also occurred when trading firm Alameda Research suffered heavy losses, prompting Bankman-Fried to allegedly send deposits from FTX clients to bolster the company’s liquidity. So, in a way, it all came from Earth. But Terra was different because it was not a centralized company and it proved insolvent. This was a decentralized financial protocol with a flawed model. Customer reaction was therefore very different. We can see this by looking at the flow of Bitcoins to and from exchanges in the chart below. Note that the first few days show a massive influx of Bitcoins from exchanges, in an action by the Luna Foundation Guard, sending a ransom to the exchanges while Terra desperately scrambled to defend the pin. After that, activity is pretty normal, with no discernible pattern between the bitcoins flowing to and from the exchanges.
Summary of 2022
Trust in exchanges hasn’t been this low since the Mt Gox collapse in 2014. But when looking at the entire year of activity on exchanges, it’s clear that two incidents have shaken that confidence more than any other: Celsius and FTX.
Looking ahead, only time will tell how much the cryptocurrency’s reputation has been damaged in the long run. If you use our data, we would like to receive a link to https://guiadobitcoin.com.br/. Crediting our work with a link helps us continue to provide you with data analysis research. Research Methodology Data retrieved on-chain. The wallets correspond to known public exchange wallets.
