Key Takeaways
- Exchange balances are about 200,000 bitcoins lower than before FTX because customers have lost all trust in exchanges.
- This surpassed the Celsius bankruptcy in June, when 128,000 bitcoins were withdrawn from exchanges in the month following Celsius’ death.
- Terra collapsed in May, but since it’s a DeFi protocol, trust in centralized entities wasn’t broken at that point.
- Time will tell how bad the FTX bankruptcy is
Confidence in cryptocurrency exchanges is at a level down all the time. It’s not hard to see why, e.g The collapse of FTX sent shock waves through the industry. Less than a month ago, FTX was considered among the safest exchanges out there.
Clients withdraw bitcoins from FTX
The numbers confirm this. In us CoinJournal.net we looked at the chain, where we saw Bitcoin leaving the exchanges unprecedented speed After the FTX bankruptcy.
In the 27 days since the FTX story began to break, nearly 200,000 bitcoins have been removed from exchanges. Apparently, thousands of Bitcoin holders are running for the hills with their Bitcoins, eager for the safety of cold storage.
“FTX was first rate royalty when it came to exchanges. Its collapse spooked investors. The transparency of exchanges is incredibly low and the reality is that it is almost impossible to know what is going on behind the scenes. The fact that Bitcoin is moving outside of these exchanges shows that customers understand this.”– said CoinJournal director Max Coupland.
Unfortunately, the FTX scandal is far from the only scandal to rock cryptocurrency this year. So how is customer reaction different this time?
Celsi brought a similar panic
When Celsius sent an email to customers on Sunday, June 12, 2022 that it was suspending withdrawals on its platform, it was a dagger to the heart of any investor with assets on the platform.
While these assets were clearly out of reach, customers quickly panicked that funds held on other lending platforms could soon be at risk as the contagion continued to ripple through the industry.
The main difference here was that the exchanges were not under pressure. As the chart below shows, however, customers were still panicking. Over the next month, exchange balances were reduced by 128,000 bitcoins, leaving over 100,000 bitcoins within 5 days of Celsi’s bankruptcy filing.
The Terra death spiral was different
The third shock variable to rock cryptocurrency markets this year was the Terra death spiral in May. In fact, it all started here. Celsi fell into the next contagion (something I was caught many) – along with Three Arrows Capital, Voyager Digital and many other firms.
Notably, this was when the trading firm Alameda Research suffered huge losses, which led Bankman-Fried to send client deposits from FTX to increase liquidity at the firm. So, in a way, it all stemmed from Terra.
But Terra was different in that it was not a centralized firm and went bankrupt. It was a decentralized financial protocol with a flawed model. Therefore, the reaction of customers was very different.
We can see this by looking at the movement of bitcoins to and from exchanges in the chart below.
It should be noted that the first few days show a massive influx of Bitcoins into the exchanges. It was the best weapon held by the Luna Foundation Guard, sent to exchanges to be retrieved as Terra fled in desperation to defend the pillar.
After that, the activity is pretty normal, with no discernible pattern between bitcoins flowing into and out of exchanges.
Summary of 2022
Confidence in stock markets has not been this low since the Mt Gox collapse in 2014. But looking at the entire year of stock market activity, it’s clear that two incidents cratered that confidence more than any other: Celsi and FTX. 
As for the future, only time will tell how far the cryptocurrency’s reputation falls in the long run.
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Research methodology
The information is taken from the chain. Wallets are compatible with known public currency wallets.