Bitcoin holders are withdrawing their tokens en masse from exchanges as risk management comes into focus

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(Kitco News) – Cryptocurrency holders appear to be disinterested in trading their tokens and are instead choosing to HODL their BTC in the safety of their cold wallets according to the latest exchange data from Arcane Research.

Developments across the crypto market in 2022 have forced many to reassess their risk management practices as collapsing decentralized financial protocols and bankrupt centralized financial platforms have highlighted the truth of “not your keys, not your crypto.”

As a result of funds being locked up or lost, Bitcoin holders have embarked on a mission to withdraw their tokens from exchanges at an astounding rate, with the month of May being the only exception in all of 2022.

Hodlers have moved their precious #bitcoin out of exchanges like never before after the summer’s collapse of major cryptolenders.

These events undoubtedly damaged the credibility of lenders, but are hodlers also losing confidence in the exchanges? pic.twitter.com/v4Tr0rNOaS

— Arcane Research (@ArcaneResearch) 22 August 2022

According to a report published by Arcane Research, “After years of increasing trust in exchanges and lending platforms, counterparty risk suddenly became an important consideration for crypto hodlers. Deposits began to flow from both crypto exchanges and lenders.”

Arcane Research cited the collapse of Terra Luna in May, which set off “a cascade that lasted through June and July, where some of the crypto market’s biggest risk takers imploded.”

This includes now-defunct crypto hedge fund Three Arrows Capital, crypto lender Celsius and crypto brokerage service Voyager, all of which are now in one stage or another of bankruptcy.

As these firms collapsed, customer funds were locked up and could not be withdrawn, and it is looking increasingly likely that it will be a total loss for many of those involved.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 disappeared, and crypto holders began withdrawing 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 July saw massive outflows, with 96,000 bitcoin withdrawn from exchanges. The exchange has continued in August, with a net 65,000 bitcoin withdrawn in the first 22 days of the month, Arcane Research said.

As a result of the outflows, the amount of Bitcoin held on exchanges is now at its 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 latest report from Coinshares shows that outflows from digital asset investment products totaled $8.7 million in the week ended Sunday.

[2/5] Digital asset investment products saw small outflows last week totaling $9 million last week with volumes of $1 billion, 55% lower than the average for the year and the second lowest this year. pic.twitter.com/vRtulPAwmR

— CoinShares ??‍?? (@CoinSharesCo) 22 August 2022

“Bitcoin, where mild negative sentiment has been focused, saw a third straight week of outflows totaling $15 million. Short bitcoin saw very small inflows totaling $0.2 million over the same period,” Coinshares said.

Overall, it appears that while crypto holders continue to hold fast to their beliefs about the future of the asset class, they are reluctant to trust others to hold their tokens and have instead returned to the original crypto ethos of bank-your-own .