The recent collapse of Sam Bankman-Fried’s $32 billion crypto empire has highlighted the importance of self-custody for crypto holders. It has also led to a market-wide trend of investors holding their assets themselves rather than entrusting them to a third-party platform. According to the latest data compiled by crypto analytic company Santiment, Bitcoin’s supply on centralized crypto exchanges has dropped from 11.85% to 6.65% over the past year.
Centralization Versus Self-Custody
This trend has been observed across the top six platforms, including Binance, Coinbase, Kraken, KuCoin, and Bitstamp. Kraken was hit the hardest, with a 59% reduction in BTC balance. It was followed by Coinbase with 33%, Bitfinex and KuCoin with 32% each, Binance with 25%, and, Bitstamp with 23%. This marks a historic drop in overall BTC supply, demonstrating the rising interest in self-custody.
The less Bitcoin there is on exchanges, the more investors see it as a long-term investment. There is also less immediate selling pressure. However, self-custody also comes with its own risks. Earlier this year, Bitcoin core developer Like Dashjr lost millions in an exploit after attackers allegedly managed to access his PGP key. Adam Back, one of Bitcoin’s earliest contributors, believes Dashjr was targeted through his home network and had his machines compromised.
Yet the rise in interest in self-custody has led centralized exchanges to expand their offerings. Binance recently announced a new feature called Mirror, based on Binance Custody. This enables institutional players to invest and trade using cold custody. Binance Venture, the venture capital arm of the exchange, also invested in Belgium hardware wallet company Ngrave.
A Risk Worth Taking
The trend of diminishing Bitcoin balances on centralized crypto exchanges is a market-wide trend that highlights the importance of self-custody for users. Investors are becoming more aware of the risks associated with entrusting their assets to a third-party platform. Thus, they are taking steps to hold their assets themselves. This trend is expected to continue as centralized exchanges expand their offerings to meet the growing demand for self-custody solutions.