Cryptoverse: Bitcoin Investors Take Control

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

In effect, 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 change among retail investors, the number of bitcoins held in smaller wallets – those with less than 10 bitcoins – increased to 3.35 million as of January 1. 11, up 23% from the 2.72 million held a year ago, according to data from CoinMetrics.

As a percentage of 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 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 hold your assets well.”

The stampede was turbocharged by the FTX scandal and other crypto meltdowns, with big investors leading the charge.

The 7-day average of daily fund movements from centralized exchanges to personal wallets hit a six-month high of $1.3 billion in mid-November, around the time of FTX’s collapse, according to data from Chainalysis.

Large investors with transfers over $100,000 were responsible for those flows, the data showed.

Reuters Charts

WHERE ARE MY KEYS?

Not your keys, not your coins.

This mantra among early crypto enthusiasts, warning that access to your funds is paramount, has steadily evolved online over the past year as financial platforms plummeted like flies.

Self-care is no picnic, however.

Wallets can range from “hot” ones connected to the internet or “cold” ones in offline hardware devices, although the latter generally do not appeal to new 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 is always the challenge of keeping your encryption key – a string of data similar to a password – without losing or forgetting it. .

During this time, hardware wallets can fail or be stolen.

“It’s very difficult, because you have to keep track of your keys, you have to back up those keys,” said Peck of TrueCode Capital, adding, “I will tell you that it’s a very difficult prospect to do the self -custody for a multi-million dollar crypto wallet.”

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

One such company, BitGo, which provides custody services to institutional investors and traders, said it saw a 25% increase in onboarding requests in December compared to the previous month from those seeking to transfer their scholarship funds, as well as a 20% increase in assets. in custody.

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

“One comment that stuck with me was ‘investors will forgive us for losing some of their money because of our trading strategies, because that’s what they sign up for, which they don’t won’t forgive us, it’s for being bad keepers.”

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

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.

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