(Kitco News) - Cryptocurrency holders appear to be uninterested in trading their tokens and are instead choosing to HODL their BTC in the safety of their cold wallets according to the latest exchange outflow data from Arcane Research.
Developments across the crypto market in 2022 have forced many to reevaluate their risk management practices as collapsing decentralized finance protocols and bankrupt centralized finance platforms have highlighted the truth of “not your keys, not your crypto.”
As a result of funds being locked or lost, Bitcoin holders have embarked on a mission to withdraw their tokens from exchanges at an astonishing rate, with the month of May being the only exception in all of 2022.
Hodlers have been moving their precious #bitcoin out of exchanges like never before following this summer's collapse of major crypto lenders.
— Arcane Research (@ArcaneResearch) August 22, 2022
These events undoubtedly damaged the lenders' trustworthiness, but are hodlers also losing trust in exchanges? pic.twitter.com/v4Tr0rNOaS
According to a report released by Arcane Research, “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.”
Arcane Research cited the collapse of Terra Luna in May, which set in motion “a cascade lasting throughout June and July, where some of the crypto market's biggest risk-takers imploded.”
This includes the now-defunct crypto hedge fund Three Arrows Capital, the crypto lender Celsius, and the crypto brokerage service Voyager, all of which are now in some stage of bankruptcy.
As these firms collapsed, customer funds were locked and unable to be withdrawn, and it's looking increasingly likely that it will be a total loss for many of those involved.
Because of this, the years spent building trust in exchanges and lending platforms evaporated and crypto holders started to withdraw their tokens en masse from 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 July also saw massive outflows, with 96,000 bitcoin being withdrawn from exchanges. The exchange outflows have continued in August, with a net of 65,000 bitcoin withdrawn in the first 22 days of the month,” Arcane Research said.
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As a result of the outflows, the amount of Bitcoin held on exchanges is now at the lowest level since July 2018, near the depths of the previous crypto winter.
Bitcoin balance on all exchanges. Source: Glassnode
Investors have also been more reluctant to invest in crypto investment products, as the most recent report from Coinshares shows that outflows from digital asset investment products totaled $8.7 million in the week ending Sunday.
[2/5] Digital asset investment products saw minor outflows last week totalling US$9m last week with volumes at US$1bn, 55% off the year average and the 2nd lowest this year. pic.twitter.com/vRtulPAwmR
— CoinShares ???? (@CoinSharesCo) August 22, 2022
“Bitcoin, where the mild negative sentiment has been focussed, saw a third consecutive week of outflows totaling US$15M. Short-bitcoin saw very minor inflows totaling US$0.2M over the same period,” Coinshares said.
Overall, it appears that while crypto holders continue to hold their convictions as to the future of the asset class, they are reluctant to trust others to custody their tokens and have instead returned to the original crypto ethos of being your own bank.
