January 24 (Reuters) – Paranoid? The domino collapse of FTX and other cryptocurrency custodians is enough to make even the most confident investor grab their bitcoin and shove it under the mattress.
Indeed, large and small holders are taking “independent control” of 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 under 10 bitcoins – rose to 3.35 million as of January 11, up 23% from 2.72 million held a year ago days, according to data from CoinMetrics.
As a percentage of the total bitcoin supply, wallet addresses holding less than 10 bitcoins now hold 17.4%, up from 14.4% a year ago.
“A lot of it 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 investing and learning how to look after your property really, really well.”
The stampede was fueled by the FTKS scandal and other crypto collapses, with big investors leading the way.
The seven-day average daily flow of funds from centralized exchanges to personal wallets jumped to a six-month high of $1.3 billion in mid-November, around the time of the FTKS collapse, according to data from Chainalisis.
Large investors with transfers above $100,000 were responsible for 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 paramount, regularly trended online last year as financial platforms dropped like flies.
However, self-defense is no walk in the park.
Wallets can range from “hot” ones connected to the Internet or “cold” to offline hardware devices, although the latter tend not to appeal to first-time investors, who often buy cryptocurrencies on major exchanges.
Multi-level security can often be a cumbersome and expensive process for the small investor, and there’s always the challenge of keeping the encryption key – a series of data similar to passwords – safe from being lost or forgotten.
Meanwhile, hardware wallets can fail or get stolen.
“It’s very challenging because you have to take care of your keys, you have to back up those keys,” TrueCode Capital’s Peck said, adding, “I will tell you that the prospect of doing stand-alone protection for a multi-million dollar portfolio is very challenging.” cryptocurrency.”
Institutional investors are also turning to regulated custodians—specialized companies that can keep funds in cold storage—because many traditional financial firms would not legally be able to “self-custody” investor assets.
One such firm, BitGo, which provides custodial services for institutional investors and traders, said it saw a 25% increase in onboarding inquiries in December compared to the previous month from those looking to move their funds out of exchanges, plus 20% jump in assets under custody.
David Wells, CEO of Enclave Markets, said trading platforms are extremely cautious about the risks of storing investors’ assets with a third party.
“The 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 is being poor custodians.’
Reporting by Medha Singh and Lisa Pauline Matakkal in Bengaluru; Editing by Pravin Char
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