Investors are withdrawing record levels of coins from crypto exchanges

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Investors are pulling bitcoin to record highs from crypto exchanges as the collapse of Sam Bankman-Frieds FTX sparks fears over the safety of their assets.

FTX, once the darling of the crypto industry, filed for bankruptcy in mid-November after an $8 billion hole appeared in its balance sheet.

New chief executive John Ray described a lack of basic risk management and Bankman-Fried admitted to poor internal controls. Its rapid fall has alarmed investors who hold and trade their assets on other centralized crypto exchanges, leading to record levels of withdrawals from bitcoin, the most traded crypto token. FTX failed last month with potentially over a million creditors, many of whom had left assets on the exchange.

Last month, investors withdrew 91,363 bitcoins, with a total value of nearly $1.5 billion based on November’s average price of around $16,400, on centralized exchanges such as Binance, Kraken and Coinbase. This marked the largest bitcoin outflow on record, according to data from CryptoCompare. It is not known whether the coins are sold or transferred to private wallets.

The rush to exit comes as the price of bitcoin has fallen 64% this year and is currently trading around $17,000.

Withdrawals in October were also high, at 75,294 bitcoin, as crypto traders withdrew funds after a crisis-laden summer that included the collapse of digital asset lenders Celsius and Voyager Digital.

Rival exchanges rushed to distance themselves and their chaos practices inside FTX in a bid to assuage client nerves and limit potential market contagion.

However, the record outflows highlight investors’ mistrust of bitcoin as the digital asset industry comes under increased scrutiny from global regulators.

In the first seven days of December, 4,545 bitcoins were withdrawn from centralized exchanges, compared to inflows of 3,846 bitcoins in the same period last year, according to CryptoCompare.

In a sign of the detrimental impact of the FTX meltdown on its once-rival exchanges, credit rating agency Moodys placed U.S.-listed Coinbases bond ratings in late November for downgrade, citing the growing likelihood of a sustained decline in trading volumes and customer engagement, two key revenue streams.

Falling crypto asset prices will limit companies’ ability to raise funds and reduce customer demand, Moodys analysts wrote this week. They added that significantly lower crypto prices will deteriorate the credit quality of centralized financial firms.

As bitcoin selling slows, the damage has been done, wrote Eric Robertsen, global head of research at Asian bank Standard Chartered, this week.

He predicted that the pain for crypto investors will continue into 2023. More and more crypto businesses and exchanges find themselves with insufficient liquidity, leading to further bankruptcies and a collapse in investor confidence in digital assets, he added.

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