Here’s how Bitcoin reserves have changed since FTX collapse

November marks two years since the bankruptcy of the FTX exchange. Since then, major crypto exchanges have seen their Bitcoin reserves increase.

FTX’s failure to maintain sufficient reserves to meet user requests exposed serious flaws in its controls. He also highlighted the need for greater transparency and reliable reserve reporting among all crypto exchanges.

Observers have become acutely aware of the risks exchanges face when they lack adequate reserves. If they cannot meet withdrawal requests, this undermines the user’s trust and puts them at risk of losing money. Maintaining adequate reserves is critical for liquidity and order execution, especially during volatile periods.

In light of this trend, CryptoQuant shared a study with crypto.news on the state of proof of exchange reserves (PoR).

How has crypto changed after FTX?

FTX’s collapse in November 2022 was one of the most significant and dramatic events in the history of the crypto industry. This event shook the confidence of investors and caused profound changes in the structure and functioning of the crypto market.

At that time, the price of Bitcoin (BTC) and other major cryptocurrencies dropped, reflecting the fear and distrust of institutional players in the market. Many investors began to doubt the security and stability of crypto and as a result decided to leave the market altogether.

Attention to security issues has become even more urgent. Many cryptocurrency exchanges and projects have begun implementing new measures to protect users’ funds, including two-factor authentication, tracking systems, and analyzing transactions for suspicious activity.

Along with new security standards, solutions have also emerged to prevent loss of funds in case of hacking or fraudulent activity. Among others, the PoR standard also emerged; A mechanism used by cryptocurrency exchanges to publicly demonstrate that they have enough assets in reserve to cover all user balances.

“PoR promotes trust and transparency as it allows users to verify that an exchange is not overusing or mismanaging its assets, which has become particularly important in the wake of high-profile stock market crashes in the industry.”

CryptoQuant’s major exchanges break Bitcoin outflow record

Among the major exchanges with the most significant Bitcoin reserves, only Coinbase does not publish PoR reports. Experts note that other major exchanges periodically submit such reports with varying degrees of transparency.

Binance’s reserves increased by 28,000 BTC, or 5%, to 611,000 in 2023, despite the pressure from the US authorities. Among major exchanges, Binance also shows the smallest reserve decline over the entire period, not exceeding 16%.

Daily foreign exchange reserves. Source: CryptoQuant

Three major exchanges hold 75% of all Bitcoins held by the exchanges. These are Coinbase Advanced with 830,000 BTC, Binance with 615,000 Bitcoin, and Bitfinex with 395,000 Bitcoin.

The reserves of these platforms total 1,836 million BTC; This corresponds to 9.3% of the total amount of Bitcoin in circulation. The remaining 17 exchanges hold a total of 684,000 BTC.

reserve extraction

Currently, Binance, Bitfinex and OKX are seeing small decreases in their reserves. At the same time, Binance seems to be the only exchange that has not experienced significant declines in its history.

Analyzing foreign exchange reserves by tracking their changes allows us to evaluate their ability to meet user demands over time.

Significant declines may indicate users have significantly withdrawn their funds, i.e. decreased confidence or financial problems.

The most significant decline in Binance’s reserves of 15% occurred in December 2022, shortly after the FTX crash. At that time, Binance was subject to serious criticism and distrust regarding its reserve report.

However, Binance’s reserves have recovered and are now down only 7%. Other major exchanges also saw slight declines; Bitfinex fell 5% and OKX fell 11%.

Foreign exchange reserves decline heat map. Source: CryptoQuant

Although industry leaders such as Binance and Bitfinex have managed to increase their reserves since the FTX crash, the situation remains tense. The failure of some major players such as Coinbase to publish PoR reports shows that the path to full transparency is still a long way off. But the current reserve dynamics indicate a desire to improve and increase users’ confidence.

In his statement to crypto.news, the expert emphasized that FTX’s bankruptcy underlines the need for crypto exchanges to prove that they have sufficient reserves.

“This incident has led to a shift in which users prefer exchanges that show proof of their presence on the chain. “This has pushed the industry to adopt PoR practices, helping to rebuild trust and ensure that exchanges can back up their users’ funds.”

Nick Pitto, CryptoQuant’s chief marketing officer