After last year’s meltdowns, crypto investors limit risk. After the abrupt bankruptcies of Celsius Network, Voyager Digital, FTX, and others last year, cryptocurrency investors are wary of who they do business with, fearing a governmental crackdown may put more pressure on existing enterprises.
According to Xclaim, which trades creditor claims, the latest crypto platform bankruptcy froze $34 billion in client assets.
According to executives and industry data, institutional crypto investors are switching to exchanges with tighter asset protection, increasing trading partner due diligence, and conducting trades in smaller chunks to reduce risk.
“Investors in this asset class have learned their lessons the hard way and now are much much more picky about who to deal with,” said Samed Bouaynaya, digital asset portfolio manager at London-based hedge fund Altana Wealth.
Industry officials expect more enforcement proceedings after the SEC sued Binance.US and Coinbase Global (COIN.O). Binance and Coinbase refute regulator claims.
Altana currently prefers exchanges that allow it to settle and hold its assets with independent third-party custodians like UK-based Copper and U.S.-based Fireblocks. According to Bouaynaya, Altana rarely leaves balances at Binance overnight.
Binance stated last week that “customer funds are always safe.”
Coinbase claims its assets are safe and the SEC litigation will not harm its operations.
Anatoly Crachilov, CEO of London-based Nickel Digital Asset Management, said nearly all its trading now takes place on exchanges that allow off-exchange settlement, meaning the assets are finalized and kept separately from the exchange, compared to 5% before FTX collapsed.
Martin Lee, a data journalist at blockchain tracker Nansen, said declining stablecoin and ether exchange balances indicate that customers are abandoning their assets from exchanges.
“We have seen quite a significant increase in trading companies that are looking for a model to still be able to trade on exchanges, whilst being able to safeguard their capital,” said Stephen Richardson, Fireblocks’ managing director.
Copper claimed that off-exchange settlement demand was rising.
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