December 16, 2022
Greg Cipolaro

Research Weekly - Bitcoins Come Off Exchanges at an Accelerated Rate


  • What the trend of bitcoins coming off exchanges says about investor behavior
  • Investors remain skittish as centralized exchanges work to allay fears
  • How the FOMC and markets differ in their forward interest outlook

Exchange Fears Cause a Wave of Investor Withdrawals

This week, the bizarre media tour conducted by Sam Bankman-Fried concluded amidst his arrest in The Bahamas and the SEC, CFTC, and DoJ filed charges. Since FTX’s abrupt collapse, investors have been on edge concerning liquidity issues that may surface at other centralized exchange platforms. As a result, sales of personal hardware wallets, such as those made by Ledger and Trezor, have spiked as long-term holders remove cryptocurrencies from exchanges and into self-custody solutions.

Looking at exchange holdings, the recent steep decline of bitcoin on exchanges backs this story up. During November, investors withdrew over 190K bitcoins at a value of over $3.3 billion. While some of this flow might be from institutional investors sourcing coins from exchanges to hold in custodial solutions, a trend that has been a hallmark of the cycle since 2020, it seems that given the spike in hardware wallets, the recent phenomenon was likely driven by retail.

We have highlighted this dynamic in the past, but it is worth revisiting given recent investor concerns about Binance. Through the current cycle, investor behaviors have been very different on Coinbase and Binance, the industry’s two largest exchanges by volume. The number of bitcoins held on Coinbase has steadily declined throughout the recent cycle. In contrast, the opposite has happened for Binance where bitcoins held on the exchange have steadily increased.

This trend of increasing coin count on Binance abruptly reversed over the past few days as a variety of fears have circulated through the market that resulted in $5.7B being removed from the exchange, roughly 10% of its asset balances. Investors in the Binance USD (BUSD) stablecoin (issued by Paxos) also redeemed about $3.6B worth of tokens. The market has been skittish generally about Binance’s reserve status but also around a potential investigation from the US Department of Justice (linked below). A recent “Proof of Reserves” (PoR) report from the South African arm of the international accounting firm Mazars failed to quell market anxiety. Its intense media scrutiny led the accounting firm to suspend its crypto practice this morning. It is reported that another accounting firm with several crypto companies, Armanino, has done the same.

Given the events of the past 6-9 months, investors are understandably skittish about the practices of exchanges, prop trading firms, and lenders. While it is impossible to predict the fate of any of these organizations, the one thing we are confident of is that it will take time for investors to regain the confidence to re-engage in crypto markets. Historically, after one of these cycle drawdowns, prices consolidate and industry chatter quiets down. Given the arrest of Sam Bankman-Fried just this Monday and continued market concerns about Binance and other players in the space, perhaps we still need to distance ourselves from the events of 2022 before investors regain their confidence.

Market Expectations Still Out of Sync with Monetary Policy Maker Forecasts

This week saw a flurry of macroeconomic data and monetary policy decisions with the monthly Consumer Price Index (CPI) release and the Fed Open Market Committee (FOMC) decision on interest rates. The November CPI data came in lower than economists expected, boosting asset prices including bitcoin. On Wednesday afternoon, the FOMC raised interest rates by 50 bps, in-line with expectations, but a hawkish tone at the press conference, plus higher future expectations weighed on assets. The FOMC’s “dot plot”, individual Fed members’ expectation of forward rate decisions, hit a median of 5.1% next year. Unfortunately, this is still well above forward rate expectations by the market, with the Fed Funds Futures implying 4.6% 12 months from now. Given that inflation has yet to show much signs of deceleration looking at the 2y stacked growth, our belief is that the Fed will keep pressure on rates until it tames inflation. This will likely keep a lid on financial assets, including bitcoin until we get some relief from the monetary policy backdrop.

Market Update

Despite a series of twists and turns this week, the price of bitcoin rose 1.7% on the week. The news of Sam Bankman-Fried’s arrest, CPI data, and then the FOMC announcement made for a bumpy week. Equities fell on the week primarily in response to the FOMC news with the S&P 500 down 1.7% and Nasdaq Composite down 2.4%. Oil rallied 6.5% but gold fell 0.6%. Bonds were mixed on the week with Investment Grade Corporate Bonds up 0.2%, High Yield Corporate Bonds up 0.5%, and Long-Term US Treasuries down 0.5%.

Important News This Week

FTX Saga:

Royal Bahamas Police Force Arrest SBF - SCB

Statement from The Bahamas AG on Arrest of SBF - SCB

Securities Commission of The Bahamas Addresses Misstatements in FTX’s U.S. Bankruptcy Case - SCB

SEC Charges Samuel Bankman-Fried with Defrauding Investors in Crypto Asset Trading Platform FTX - SEC

CFTC Charges Sam Bankman-Fried, FTX Trading, and Alameda with Fraud and Material Misrepresentations - CFTC

United States Attorney Announces Charges Against FTX Founder Samuel Bankman-Fried - US Department of Justice

Exclusive Transcript: The Full Testimony Bankman-Fried Planned To Give To Congress - Forbes

Investigating the Collapse of FTX, Part I - US House Committee on Financial Services

Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers - US Senate Committee on Banking, Housing, and Urban Affairs

Regulation and Taxation:

U.S. Justice Dept is Split Over Charging Binance as Crypto World Falters - Reuters

Senator Warren Introduces Digital Asset AML Act - Senator Warren

The Digital Asset AML Act is an Opportunistic, Unconstitutional Assault on Cryptocurrency self Custody, Developers, and Node Operators - Coin Center

NYDFS Reiterates That Banks Need Prior Approval for Crypto-Related Activities - NYDFS


Tether Hedge Fund Shorts Rise as FTX Reveals Crypto Cracks - Bloomberg

Binance CEO Zhao Warns Bumpy Road Ahead in Message to His Staff - Bloomberg

Transparency Among FUD - Paxos

Paxos Risk & Liquidity Management Programs Protect Customers During Market Volatility - Paxos

Mazars to Pause All Work for Crypto Clients, Binance Says - Bloomberg

FTX.US Accounting Firm Armanino Ends Crypto Audit Practice - Forbes


ConsenSys Teams with PayPal for A New Way To Buy Crypto in MetaMask - ConsenSys

Protecting Our Customers From Phishing Campaigns - Gemini

Upcoming Events

Dec 30 - CME Expiry

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