Cryptoverse: Bitcoin Investors Take Control

Jan. 24 (Reuters) – Paranoid? The domino downfall of FTX and other cryptocurrencies is enough to make the most trusting investor grab their bitcoin and shove it under the mattress.

In effect, holders large and small are “self-custodializing” their funds, moving them from crypto exchanges and trading platforms to personal digital wallets.

In a sign of this shift among retail investors, the number of bitcoins held in smaller wallets — those with fewer than 10 bitcoins — rose to 3.35 million as of January 11, up 23% from the 2.72 million held a year ago, according to data. from CoinMetrics.

As a percentage of the total supply of bitcoin, wallet addresses with less than 10 bitcoin now own 17.4%, up from 14.4% a year ago.

“A lot of this really depends on how often you trade,” said Joshua Peck, founder of hedge fund TrueCode Capital. “If you’re just going to buy and hold for the next 10 years, then it’s probably worth making the investment and learning how to take care of your assets very, very well.”

The stamp has been turbocharged by the FTX scandal and other crypto collapses, with large investors leading the way.

The 7-day average of daily movement of funds from centralized exchanges to personal wallets jumped to a six-month high of $1.3 billion in mid-November, at the time of the FTX collapse, according to data from Chainalysis.

Large investors with transfers above $100,000 were responsible for about 68% of those flows, the data showed.

WHERE ARE MY KEYS?

Not your keys, not your coins.

This mantra among early crypto enthusiasts, warning that access to your funds is essential, was regularly trending online last year when financial platforms were dropping like flies.

However, self-storage is no walk in the park.

Wallets can vary from “hot” connected to the Internet or “cold” in offline hardware devices, although the latter usually does not appeal to first-time investors, who often buy crypto on major exchanges.

The multi-level security can often be cumbersome and expensive for a small investor, and there is always the challenge of guarding the encryption key – a string of data similar to a password – without losing or forgetting it.

Meanwhile, hardware wallets can fail or get stolen.

“It’s very challenging, because you have to keep track of your keys, you have to back up those keys,” said Peck at TrueCode Capital, adding: “I’ll tell you, it’s a very challenging prospect to have self-storage for a multi-million-dollar portfolio of crypto.”

Institutional investors are also turning to regulated custodians – specialized companies that can hold funds in cold storage – as many traditional financial firms would not legally be able to “self-custodial” investors’ assets.

One such firm, BitGo, which provides custody services for institutional investors and traders, said it saw a 25% increase in onboarding requests in December compared to the previous month from those looking to move their money off exchanges, plus a 20% jump in assets. under custody.

David Wells, CEO of Enclave Markets, said trading platforms were extremely wary of the risks of storing investors’ assets with a third party.

“One comment that stuck with me was ‘investors will forgive us for losing some of their money through our trading strategies because that’s what they sign up for, what they won’t forgive us for being bad managers’. “

(This story has been corrected to show that large investors were responsible for about 68% of the flows, in paragraph 8)

Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Pravin Char

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