Cryptoverse: Bitcoin Investors Take Control

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

In fact, owners large and small are taking “self-management” 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 less than 10 bitcoin – rose to 3.35 million per from CoinMetrics.

As a percentage of the total bitcoin supply, 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 store your assets really, really well.”

Stampede has been turbocharged by the FTX scandal and other crypto collapses where big investors are leading the way.

The 7-day average of daily movements of funds from centralized exchanges to personal wallets rose 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 those flows, the data showed.

Reuters graphics


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 funding platforms dropped like flies.

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

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

The multi-level security can often be a cumbersome and expensive process for a small investor, and there is always the challenge of keeping your 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 for self-sufficiency for a multi-million-dollar portfolio of crypto.”

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

One such firm, BitGo, which provides custody services to 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 from exchanges, plus a 20% jump in assets under custody.

David Wells, chief executive of Enclave Markets, said trading platforms were extremely wary of the risks of keeping 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 poor custodians’ .”

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

Our standards: Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which is bound by the fiduciary principles of integrity, independence and freedom from bias.

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