Emily Boswell 2m 411 #
The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
‘Trust in exchanges hasn’t been this low since 2014’: crypto analyst on FTX fallout
Trust in cryptocurrency exchanges is at an all-time low. It is not difficult to figure out why, as the collapse of FTX has sent shockwaves through the industry.
The team at CoinJournal have looked on-chain, where we have seen Bitcoin flow out of exchanges at unprecedented speed in the aftermath of the FTX bankruptcy.
Exchanges balances are lower by nearly 200,000 bitcoins compared to pre-FTX, as customers have lost all trust in exchanges
This trumps the Celsius insolvency of June, where 128,000 bitcoins were pulled from exchanges in the month following Celsius’ demise
Terra collapsed in May, but seeing as it was a DeFi protocol, trust in centralised entities had not yet broken at that point
Only time will tell how bad the contagion from the FTX bankruptcy is
“In the 27 days since the FTX story started to break, a net figure of nearly 200,000 bitcoins has been pulled from exchanges. It appears thousands of Bitcoin holders are running for the hills with their Bitcoin, pulling to the safety of cold storage.
Celsius brought similar panic in June when they suspended withdrawals on the platform. Customers soon panicked that funds held on other lending platforms could soon come under threat and exchanges balances were reduced by 128,000 bitcoins over the next month, with over 100,000 flowing out in a 5-day period soon after Celsius were declared insolvent.
The third shocking variable to rock crypto markets this year was the Terra death spiral in May. Notably, this was also when trading firm Alameda Research suffered large losses which led to Bankman-Fried allegedly sending customer deposits from FTX to shore up liquidity at the firm. So in one way, it all stemmed from Terra.
But Terra was different in that this was not a centralised firm and proved insolvent. This was a decentralised finance protocol with a flawed model. The reaction from customers was therefore vastly different. Activity is quite normal, with no discernible pattern between bitcoins flowing to and from exchanges.
Trust in exchanges has not been this low since the Mt Gox collapse of 2014. But in looking through the entire year of exchange activity, it is clear that two incidents cratered this trust more than any other: Celsius and FTX.
Regarding the future, only time will tell how badly crypto’s reputation has been dented in the long-term.”
Please find further insight from CoinJournal here.