Exchanges have record crypto withdrawals

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Investors are withdrawing record levels of bitcoin from cryptocurrency exchanges as the collapse of Sam Bankman-Fried’s FTX sparks fears over the safety of its assets.

FTX, once the darling of the crypto industry, filed for bankruptcy protection 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 weak internal controls. Its rapid decline has alarmed investors holding and trading assets on other centralized crypto exchanges, leading to record levels of withdrawals from bitcoin, the most traded crypto token. FTX went bankrupt last month with potentially more than 1 million creditors, including many who left assets on the exchange.

Last month, investors withdrew 91,363 bitcoins, worth a total of nearly $1.5 billion, based on an average November price of around $16,400, from centralized exchanges including Binance, Kraken and Coinbase. This marked the largest bitcoin outflow on record, according to data from CryptoCompare.

It is unclear if the coins are being sold or moved to private wallets.

The rush to exit comes as bitcoin’s price has dropped 64% this year and is currently trading around $17,000.

Withdrawals in October were also high, at 75,294 bitcoins, as cryptocurrency traders withdrew their 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 practices from the chaos within the FTX in an effort to calm customer nerves and limit potential market contagion.

However, the record outflows highlight investors’ caution towards bitcoin as the digital asset industry faces increased scrutiny from global regulators.

In the first seven days of December, 4,545 bitcoins were withdrawn from centralized exchanges, compared with inflows of 3,846 bitcoins in the same period last year, according to CryptoCompare.

In a sign of the damaging impact of the FTX collapse on its former rival exchanges, credit ratings agency Moody’s placed the U.S.-listed Coinbase bond rating on review for downgrade in late November, citing “the increasing likelihood of sustained declines in trading volumes and customer engagement, two key revenue drivers”.

“Falling cryptocurrency prices will constrain companies’ ability to raise funds and reduce customer demand,” Moody’s analysts wrote this week. They added that sharply lower crypto prices “will deteriorate the creditworthiness of centralized finance companies.”

“While the bitcoin selloff slows, the damage has already been done,” wrote Eric Robertsen, global head of research at Standard Chartered, with a focus on Asia, this week.

He predicted that the struggle for cryptocurrency investors will continue until 2023. “More and more companies and crypto exchanges find themselves with insufficient liquidity, leading to more bankruptcies and a collapse in investor confidence in digital assets,” he added.

Translated by Luiz Roberto M. Gonçalves

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