21 Aug 2022
Bitcoin is flowing out of crypto exchanges
Hodlers have been moving their precious bitcoin out of exchanges like never before following this summer's collapse of major crypto lenders. These events undoubtedly damaged the lenders' trustworthiness, but are hodlers also losing trust in exchanges?
There is now 2.1 million bitcoin deposited at exchanges, but this number has declined for seven out of eight months in 2022. The year started with slight negative exchange net flows from January to April but then saw significant net inflows in May.The exchange inflow period didn't last long. At the end of May, the crypto market got hit by the Terra Luna collapse, setting in motion a cascade lasting throughout June and July, where some of the crypto market's biggest risk-takers imploded. Among those were the crypto hedge fund Three Arrows Capital and several crypto lenders.Some crypto lenders, like Celsius, went outright bust and lost their customers' deposits. Others halted withdrawals and attempted to get out of the situation by not getting bank runned by anxious depositors.After several years of growing trust in exchanges and lending platforms, counterparty risk suddenly became an essential consideration for crypto hodlers. Deposits started to flow out of both crypto exchanges and lenders.June saw a net outflow from exchanges of 119,000 bitcoin, the highest outflow since November 2020. July also saw massive outflows, with 96,000 bitcoin being withdrawn from exchanges. The exchange outflows have continued in August, with a net of 65,000 bitcoin withdrawn in the first 22 days of the month.Crypto lender Nexo, which didn't halt withdrawals, saw its bitcoin deposits plummet from 261,000 in the middle of May to 170,000 in the middle of July. It has since grown to 193,000, indicating that trust in the lenders is growing again.The massive bitcoin outflows from centralized counterparties indicate that crypto hodlers are trusting the exchanges and lenders less than before. Bitcoin is increasingly being moved into cold storage, further indicated by the recent sales boost hardware wallet manufacturers like Ledger and Trezor have seen.Although the counterparty risk for one particular lender or exchange might be small, history has been the kindest to the crypto hodlers who keep the majority of their assets safely in cold storage. It's always better to be safe than sorry.Still, the current bitcoin market structure is very different from what it was, and the spot markets have decreased in importance. Read more about it here.