- Fewer Bitcoins are being stored on major trading platforms, marking the lowest levels seen in more than five years. The total count is down to 2 million BTC, equivalent to around $54.5 billion.
- The shift away from keeping Bitcoin in centralized exchanges is influenced by a host of factors, including the emergence of alternative trading methods and loss of trust due to the 2021 FTX fiasco.
- Institutional investors like crypto hedge funds are increasingly employing diversified strategies for safekeeping their digital assets, opting less frequently to store their wealth on centralized exchanges.
Cryptocurrency investors are stashing their Bitcoin in places other than centralized trading platforms, pushing the numbers to a low point that hasn’t been touched in half a decade. Data analytics company CryptoQuant confirms that a 5% drop this month left just 2 million BTC, roughly valued at $54.5 billion, in these marketplaces.
Several driving factors are shaping this decline, and it has both positive and negative implications for the crypto industry. One significant contributor to this trend is the rise of new services such as Copper’s ClearLoop, which lets people trade without keeping their money on a centralized trading floor. Markus Thielen, who leads research and strategy at Matrixport, has stated that as the crypto market grows, old-school trading floors will need to change how they do business.
Adding to the concerns about centralized exchanges is the downfall of FTX last year. Once the third biggest player in global trading volume, FTX got into hot water for mishandling user accounts, prompting many to question the reliability of such platforms. Thielen says the FTX episode has highlighted the importance of managing one’s own digital assets, leading many to take self-custody seriously.
Recent research from global consultancy PricewaterhouseCoopers shows that hedge funds dealing in cryptocurrencies are also treading cautiously. The majority are now using a mix of ways to store their Bitcoin, and only around 9% continue to trust centralized exchanges as the sole repository for their digital treasure. This suggests a broader move towards risk-avoidance among these influential financial institutions.
Despite the short-term uncertainties, the reduction in Bitcoin held in centralized marketplaces might also hint at a robust future for cryptocurrencies. Thielen suggests that the trend signifies long-term investor confidence. With less Bitcoin on trading platforms, it seems that many believe in holding onto the digital currency for the long haul, viewing it as a worthy asset.
By taking these changes into account, it’s evident that the cryptocurrency landscape is evolving, with stakeholders at all levels showing a heightened sense of caution and a focus on long-term investment strategies.
Investors Favor Cold Wallets, DEXs Over Centralized Exchanges
Cryptocurrency experts are increasingly urging investors to bypass traditional, centralized exchanges in favor of more secure options like decentralized exchanges (DEXs) and cold storage wallets. This advice comes as security issues continue to plague centralized platforms, making them lucrative targets for cybercriminals.
In recent years, numerous high-profile hacks have impacted centralized exchanges, leaving investors with substantial losses. Conversely, cold storage wallets, either hardware or paper-based, offer stronger security by being disconnected from the internet, thereby reducing the risk of online hacking.
Moreover, investors express concerns over the lack of ownership control on centralized platforms. Typically, when Bitcoin is stored in such an exchange, the private keys, vital for the control and ownership of the asset, are managed by a third party. DEXs and cold wallets allow the investor to retain control over their private keys, solidifying their ownership of the assets.
Furthermore, centralized platforms pose an additional layer of risk known as counterparty risk, where the exchange itself could default or engage in fraudulent activities. DEXs eliminate this particular risk by enabling direct, peer-to-peer transactions.
