Cryptoverse: Bitcoin Investors Take Control

Jan 24 (Reuters) – Paranoid? The dominoes of FTX and other crypto custodians are enough to make the most gullible investor grab their bitcoin and stuff it under the mattress.

Indeed, holders large and small are taking “self-custody” 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 bitcoins — rose to 3.35 million as of January 11, up 23% from the 2.72 million held a year ago, according to data from CoinMetrics.

As a percentage of the total bitcoin supply, wallet addresses holding less than 10 bitcoins now hold 17.4%, up from 14.4% a year ago.

“A lot of it 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, it’s probably worth making the investment and learning how to protect your assets really, really well.”

The scramble was fueled by the FTX scandal and other cryptocurrencies, with big investors leading the way.

The 7-day average daily flow of funds from centralized exchanges to personal wallets jumped to a six-month high of $1.3 billion in mid-November during the FTX collapse, according to data from Chainalysis.

Large investors with transfers above $100,000 are responsible for these flows, the data show.

Reuters Graphics


Neither your keys nor your coins.

This mantra among early crypto enthusiasts, warning that access to your funds is paramount, was regularly enforced online last year when financial platforms were dropping like flies.

However, sole custody is no walk in the park.

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

Multi-level security can often be a cumbersome and expensive process for a small investor, and there’s always the challenge of keeping your encryption key — a string of data similar to a password — safe 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,” TrueCode Capital’s Peck said, adding: “I’ll tell you, it’s a very challenging prospect to do single-custodianship of a multi-million dollar crypto portfolio .”

Institutional investors are also turning to regulated custodians — specialized companies that can hold funds in cold storage — because many traditional financial firms would not be able to legally “self-custody” investors’ assets.

One such firm, BitGo, which provides custodial services for institutional investors and traders, said it saw a 25% increase in onboarding inquiries in December over the previous month from those looking to move their funds out of exchanges, plus a 20% jump in assets in custody.

David Wells, CEO of Enclave Markets, said trading platforms are extremely cautious about the risks of keeping investors’ assets with a third party.

“The 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 signed up for, what they won’t forgive us for is being bad custodians “.

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

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence and freedom from bias.

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