[Bitcoin Now] Investors Withdraw from Exchanges... Miners Leave the Market

Cryptocurrency Market Trust Hits Bottom
Bitcoin Holdings at Exchanges
Down 7.7% Since FTX Incident
Reduced Competition Slows Mining Speed

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] The global cryptocurrency exchange FTX's bankruptcy protection situation has not only caused coin prices to plummet but also shattered trust across the entire market. The unprecedented news of a global exchange's bankruptcy triggered market turmoil as investors rushed to withdraw their cryptocurrencies.

According to cryptocurrency data firm CryptoQuant on the 14th, as of the previous day, the amount of Bitcoin held by exchanges was recorded at 2,098,600 BTC, a 7.7% decrease compared to 2,273,000 BTC on the 7th, before the FTX incident. The amount of Bitcoin held by exchanges had been between 2.29 million and 2.31 million BTC earlier this month. However, once the incident occurred, the volume of Bitcoin held on exchanges began to sharply decline. When converted to dollars, the amount of Bitcoin held by exchanges is at its lowest level since November 2020.

The sharp decline in Bitcoin holdings on exchanges is interpreted as a reflection of the loss of trust in exchanges following the FTX incident. Coins withdrawn from exchanges move to investors' personal wallets. When a liquidity crisis occurs at an exchange or there are concerns about hacking or inability to withdraw cryptocurrencies, investors transfer their coins to personal wallets.

Due to liquidity issues stemming from allegations of financial instability at affiliated company Alameda Research and the world's largest global exchange Binance withdrawing its acquisition offer, a bank run (a situation where customers withdraw coins en masse) occurred at FTX. Additionally, FTX's filing for bankruptcy protection under Chapter 11 increased the likelihood that investors may not recover their deposited assets. Chapter 11 of the U.S. Bankruptcy Code refers to a restructuring process under court supervision aimed at rehabilitation. On the 11th (local time), FTX announced, "We have voluntarily initiated bankruptcy protection procedures to liquidate assets and begin an orderly review process for the benefit of all stakeholders worldwide." Furthermore, FTX confirmed that coins worth approximately 870 billion KRW disappeared immediately after filing for bankruptcy protection and is investigating the possibility of hacking among other causes.

Typically, a decrease in the amount of Bitcoin held by exchanges means a reduction in supply, which leads to price increases. However, in this case, withdrawals occurred due to distrust not only in exchanges but across the entire coin market, and prices have continued to decline. Moreover, the amount of stablecoins?cryptocurrencies pegged to fiat currencies and used as a medium of exchange?held by exchanges has also decreased, raising concerns about a "trading cliff." The amount of stablecoins held by exchanges fell 6.76% from 26,515,020,000 on the 7th to 24,723,930,000 as of the previous day.

As more investors leave exchanges, Bitcoin mining is also gradually decreasing. According to cryptocurrency mining information site CoinWarz, as of 8 p.m. the previous day, Bitcoin's hash rate was 239.56 exahashes per second (EH/s). Compared to 341.99 EH/s at 8 a.m. on the 12th, this is a decrease of 102.43 EH/s. The hash rate, which indicates the speed of cryptocurrency mining, is designed to increase as more miners participate and competition intensifies.

This situation occurred as the average mining cost remained higher than the Bitcoin price. On the 11th, the average mining cost was $6,802 (approximately 8.94 million KRW) higher than the Bitcoin price. Miners appear to be selling mined coins on exchanges to earn as much profit as possible. The amount of Bitcoin held by miners decreased from 1,858,271 on the 8th to 1,853,929 as of the previous day. This decline is the first since early September when hawkish remarks by U.S. Federal Reserve Chairman Jerome Powell raised concerns about tightening. Typically, miners reduce their holdings and begin selling Bitcoin when a price drop is expected.

Meanwhile, the impact of the FTX incident continues to weigh on Bitcoin prices, which are on a downward trend. As of 11:27 a.m. on the day, the price was $16,038 (approximately 21.19 million KRW), down 5.04% from the previous day.

Cryptocurrency investor sentiment is in a state of extreme fear. According to cryptocurrency data provider Alternative, the Fear & Greed Index, which measures investor sentiment, rose by 2 points from the previous day to 24 points (extreme fear). Alternative's Fear & Greed Index ranges from 0, indicating extreme fear and pessimism about investing, to 100, indicating optimism.