Investors are starting to withdraw their bitcoin funds in a record way never before on cryptocurrency exchanges, as the collapse of FTX raises concerns about the safety of their assets.
FTX, once a number one in the cryptocurrency industry, filed for bankruptcy protection in mid-November, after an $8 billion hole appeared on its balance sheet. According to the Financial Times. New CEO John Ray attributed the fate of FTX to basic risk management, and Bankman Fried acknowledged weaknesses in internal controls.
FTX’s rapid decline has worried investors who hold and trade their assets on other centralized crypto exchanges. This led to record levels of withdrawals of funds from Bitcoin, the most widely traded cryptocurrency. FTX failed last month with more than a million creditors potentially involved, including many who left their assets on the exchange.
Last month, investors sold 91,363 bitcoins, with a total value of nearly $1.5 billion, based on the November average price of about $16,400, from centralized exchanges including Binance, Kraken and Coinbase. This represented the largest influx of bitcoin ever, according to data from CryptoCamper. The rush to exit comes as the price of bitcoin is down 64% this year, and is currently trading around $17,000.
October withdrawals were also high, at 75,294 bitcoins, and cryptocurrency traders pulled out their funds after a crisis-filled summer. Rival exchanges have scrambled to distance themselves and their practices from the chaos within FTX, in an effort to dampen client emotions and limit potential market contagion.
However, the record outflows highlight investors’ wariness of bitcoin. The digital asset industry faces increasing scrutiny from global regulators. In the first seven days of December, 4,545 bitcoins were withdrawn from centralized exchanges, compared to an inflow of 3,846 bitcoins in the same period last year, according to Cryptocamper.
In a sign of the detrimental impact of the FTX collapse on its once-rival exchanges, credit rating agency Moody’s put the US-listed Coinbase’s rating on review for a downgrade in late November, citing “the growing possibility of continued declines in trading volumes and customer participation, which are two of the drivers.” essential to revenue.
“Lower crypto-asset prices will constrain companies’ ability to raise funds and reduce customer demand,” Moody’s analysts wrote this week. Significantly lower cryptocurrency prices, they added, “will deteriorate the credit quality of central finance companies.”
“While bitcoin sell-off is slowing, the damage has been done,” Eric Robertson, head of global research at Asia-focused Standard Chartered Bank, wrote this week.
He predicted that the pain faced by cryptocurrency investors will continue until 2023. “More and more crypto companies and exchanges find themselves lacking sufficient liquidity, which leads to more bankruptcies and a collapse of investor confidence in digital assets,” he added.