FTX Disaster Has People Fleeing from Exchanges, with Nearly $4B BTC Pulled

By Spencer Hulse Spencer Hulse has been verified by Muck Rack's editorial team
Published on November 14, 2022

FTX disaster has people fleeing: Last week, FTX, one of the largest crypto exchanges in the world, went under. After a desperate struggle to find financing and support, the company declared bankruptcy, marking a major disaster for the crypto industry. The sudden collapse is now the subject of investigations to figure out what happened, and it might even serve as the fuel for regulatory change. But while those issues are ongoing, people are already running for the hill, with the outflow from exchanges reaching an impressive high.

It only took a week: Between November 6th and the 13th, users worldwide started pulling their assets out of exchanges. While the amount varies, users pulled around $3.7 billion in Bitcoin (BTC), $2.5 billion in Ether (ETH), and $2 billion in various stablecoins, according to CryptoQuant, a platform that tracks data from most major exchanges.

  • The withdrawal of crypto coins began when the FTX struggles began, with the amount increasing as the week went on. Ether saw a massive spike on the 13th.
  • During the brief period, crypto saw one of its darkest periods, which has affected the value of the technology as a whole. All of that is due to the failure of a single leading exchange.

Continued concerns over regulations: The concerns over regulations are not new, but the collapse of a dependable exchange like FTX has elevated concerns. Many are curious about the loosely-regulated companies and the systems in place to protect client assets.

  • There have been various crypto businesses to falter this year and last, including Celsius Network and Voyager Digital, a trading platform promoted by Mark Cuban before it went bankrupt.
  • A crypto regulation bill aims to give the CFTC oversight of crypto trading. While it is not expected to get significant traffic now, the FTX disaster puts it in the spotlight and highlights volatility and questionable internal controls that could change how these issues are approached.

Binance spoke out about its lack of confidence: A tweet from Binance’s “CZ” started things off on November 6th, with the content questioning the strength of Alameda Research, the trading firm tied to the exchange. It made investors panic, resulting in the withdrawal of $430 million in BTC in four days, which took the exchange from holding nearly 20,000 BTC to almost none.

  • Binance was also in talks about taking over FTX, but that did not go through after a review of FTX’s structure and books.

Self-custody on the rise: One of the things to come from this incident is people taking greater control over their crypto assets. Advice is popping up all over, using FTX as an example of why people should avoid third-party custodial wallets and take control personally. The result is many people choosing non-custodial wallets.

  • The outflow from exchanges puts overall exchange reserves at their lowest since February 2018.
  • A Glassnode senior analyst remarked that estimates are “based on wallet clustering” and are “more likely to be a lower bound than an overestimate.”

The reaction of others in the industry: While many remain confident in the industry and technology, they have remarked that things will change. Moreover, many companies have spoken out about increasing transparency, including OKX, KuCoin, and Huobi. That includes sharing “proof of reserves” in an effort to reassure investors.

  • Even Binance is not immune to the backlash as people grow wary after the FTX collapse. In response and for transparency, it published some of its wallets and holdings.

Going forward: Crypto has always been a volatile industry, but it is particularly so after FTX’s fall. Whether that means further regulations or a return to the core principles of decentralized blockchain technology is still uncertain. But one thing is certain: investors will be far more cautious in the days ahead.

By Spencer Hulse Spencer Hulse has been verified by Muck Rack's editorial team

Spencer Hulse is the Editorial Director at Grit Daily. He is responsible for overseeing other editors and writers, day-to-day operations, and covering breaking news.

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