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FTX fallout sparks a wave of exchange withdrawals and crypto wallet downloads

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(Kitco News) - The collapse of FTX has been a wake-up call for crypto holders who had gotten a little too comfortable with allowing a third party to hold their tokens and do with them as they will.

As anyone who has been involved in the crypto space for several years can attest, the concept of “not your keys, not your crypto” used to be more widely discussed and followed. The rise of crypto lending and the ability to earn a yield on assets held on exchanges proved to be too enticing for many hodlers to pass up, leading them to relinquish custody of their crypto in exchange for a small reward.

Unfortunately, the events of 2022, starting with the implosion of Terra/Luna and, more recently, the collapse of FTX, have reminded crypto holders, new and old, of the reason many got into cryptocurrencies in the first place – the ability to self-custody their assets.

While there is not much that those who had assets locked up in either Terra or FTX can do at this point to retrieve their funds besides wait for bankruptcy proceedings to play out, the community at large has gotten the message that their crypto is safest when it's in a wallet they control.

Data from CryptoQuant shows that aside from Nov. 17, crypto exchanges have seen heavy outflows of Bitcoin since early November when the FTX drama kicked off.

Bitcoin Exchange Netflow. Source: CryptoQuant

The chart for Ethereum shows a similar pattern, indicating that self-custody is indeed experiencing a revival across the cryptocurrency ecosystem.

This is further supported by data provided by Finbold, which shows that between January and October 2022, an estimated 102.06 million crypto wallets were downloaded for Android and iOS devices. This figure was based on the top 21 digital currency storage apps.

Worldwide crypto wallet app downloads. Source: Finbold

While this figure is lower than the 177.85 million downloads that occurred during the bull market of 2021, it is more than three times higher than any previous year.

Breaking it down by month, the data shows that wallet downloads were trending down from the start of the year but briefly rose in May, the month that Terra/Luna collapsed.

2022 crypto wallet app downloads by month. Source: Finbold

The lull seen in June through August is typical of bear market periods, as traders tend to avoid the market completely amid falling valuations.

While it's too early to get a full picture of the increase in wallet downloads for the month of November, data provided by Similarweb shows a common pattern indicating a spike in the usage score for some of the top crypto wallets, such as the Enjin wallet or Exodus wallet.

Usage rank for the Enjin Wallet. Source: Similarweb

This spike, which occurred around Nov. 10 for all the reviewed charts, came the day before FTX filed for bankruptcy.

Further evidence of the rush to self-custody cryptocurrencies was provided by Josef Tetek, a Bitcoin analyst for the cryptocurrency hardware provider Trezor.

In a conversation between Kitco Crypto and Tetek, the analyst noted a significant uptick in Trezor purchases as a result of this year's tumultuous market.

“We have seen a significant surge of interest in Trezor devices,” Tetek said. “People are finding out that keeping their coins on exchanges such as FTX or with custodians such as BlockFi can be very risky, so they are naturally looking for self-custody options.”

While crypto prices were hitting new lows amid the FTX fallout, Trezor saw an influx of purchases that rivaled what the company saw during last year's bull market.

“Our sales in the weeks following the FTX collapse are comparable to a year ago, when the bitcoin price was hovering around its historic highs,” Tetek noted. “Normally, a bear market is rather a quiet period for us, so this uplift in sales only shows how big of an impact the collapse of FTX has on people's distrust in custodians.”

And with the FTX contagion still working its way through the crypto ecosystem – as evidenced by Monday’s announcement that the crypto lender BlockFi filed for bankruptcy protection, citing its exposure to FTX – there is a good chance that “not your keys, not your crypto” will once again become the mantra of the crypto faithful.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.