Bitcoin investors have been withdrawing their holdings from centralized exchanges and moving them to non-custodial wallets. According to a BanklessTimes.com report, 88% of all Bitcoin volume is now off exchanges – a 3-year-old high. This move signals a shift in investor sentiment and could indicate greater confidence in the crypto asset class as a whole.
BanklessTimes CEO Jonathan Merry recently shared his thoughts on the collapse of FTX and its potential impact on Bitcoin investors. He suggested that the event catalyzed bitcoiners to move to non-custodial storage away from third-party custodians. He said,
FTX’s collapse may have served as an alarming reminder of how vulnerable centralized exchanges can be, shining a light on the safety and privacy associated with self-custody solutions. It was a timely reminder for Bitcoin holders to take control of their finances by transferring their holdings to wallets that provide a degree of security, privacy, and autonomy – all at their fingertips.
Fear of Contagion Led to Massive BTC Withdrawals
Fudding in the wake of the FTX debacle saw leading exchanges Binance and Coinbase record massive BTC withdrawals. Many investors opted for self-custody means fearing that these, too, would go down FTX’s path, endangering their investments. However, the two have so far managed to weather the avalanche of BTC withdrawals that they faced easing investor fears over the soundness of their operations.
November registered the highest number of withdrawals, with the Financial Times reporting over 91,000 BTC (about $1.5B based on the average exchange BTC to USD exchange rate of $16,400) left the exchanges. That followed the 75,294 BTC ($1.234B)that bitcoiners withdrew from the platforms in October.
The paper suggests that investors have pulled out at least 4,500 ($73.8M) coins by the first week of December 2022. That’s a complete reversal of the situation the same time a year ago when the exchanges recorded an inflow of 3,846 BTC ($181.8M based on BTC to USD average exchange rate of $47,273).
Despite the significant BTC exodus from exchanges, its holders seem not to be selling their coins. Instead, their movement to self-custody wallets indicates they are hodling the crypto asset. This shift suggests their growing bullishness about the king crypto entering the new year. 2022 has been turbulent for the premier digital asset, and it’ll be interesting to see how it maneuvers the current uncertainty surrounding the global crypto market.
Impact on the BTC Ecosystem
The movement of Bitcoin off of exchanges can impact the ecosystem in a few ways. For starters, many investors moving their Bitcoin off of exchanges could reduce the market’s liquidity. This reduction could make it more difficult for traders to buy and sell bitcoin. Additionally, it could also lead to broader price spreads between different exchanges.
Secondly, the exodus could lead to a decrease in trading volume on those exchanges. That could negatively impact investor confidence in the asset, making it an unappealing investment. Finally, by moving their investments off centralized exchanges, bitcoiners potentially reduce the BTC ecosystem’s overall custodial risk.