Following the recent lawsuits by the United States Securities and Exchange Commission (SEC), there has been significant movement in the market. According to the recent report by Glassnode, an on-chain analytics firm, by the end of last week which witnessed the lawsuits, Ethereum was trading 8.2% lower whereas Bitcoin was slightly better around 6.4%.
The chart below shows Bitcoin exchange deposit and withdrawal volumes, demonstrating how flows in both directions tend to track each other very closely. Notably, this week was no exception, with flows in, and out increasing by around 70% to $845M per day.
Simultaneously, withdrawals on aggregate have outpaced deposits by around 10% this week, suggesting that self-custody remains a preferred strategy for investors overall. A similar dynamic was observed around the last major exchange related news, being the collapse of FTX.
In particular, Binance and Coinbase have experienced different levels of outflows from their respective platforms. Immediately after the news of the Binance lawsuit broke, coins started to flow out of the exchange. Over the last 7-days, the aggregate stablecoin balance has been pulled down by $1.6 billion, equivalent to 20.9% of the total Binance balance. Simultaneously, Bitcoin and Ethereum reserves are down a more modest 5.7% and 7.1%, respectively.
Notably, Coinbase is in a more comfortable position when compared to Binance after the lawsuit. For Coinbase, net reserve changes are far less dramatic, with stablecoin balances remaining flat on the week, and BTC balances declining by just 2,300 BTC (0.5% of total). However, Ethereum balances experienced a large decline of 291,000 coins, equivalent to around 8.0% of the total balance.
This suggests a more pronounced investor response, perhaps related to the offered staking services coming under fire. While outflows are generally considered to be a bullish sign for the asset, the outflows from the named exchanges right after the lawsuits hint to a sign of panic and waning trust on the exchange.
Another metric which is the exchange inflow levels have experienced significant movement across the different investor groups. The Glassnode’s graph features groups listed below:
- Short-Term Holders account for 76.4% of deposit volume (23.0k BTC)
Notably, the short term holders historically account for a stable 60% of deposit flows have shooted up to 76.4% of deposit volume (23,000 Bitcoin). This suggests recent buyers have been the most active this week.
- Long-Term Holders
As per data, Bitcoin long term holders are remarkably calm, showing no discernible reaction to the news as reported by Todayq News. Their exchange inflow volume this week was recorded to be 1.9% of deposit volume (570 Bitcoin), just 0.004% of their total holdings, with 66% of all trading days seeing larger relative inflows.
- Inter-Exchange Transfers
According to Glassnode, the inter-exchange flows are typically around 35%, however, this week have recorded to account for 21.7% of deposit volume (6,530 Bitcoin). This suggests that investors on the margin are preferring to take self-custody, rather than simply transferring coins to a different exchange.
Notably, with the SEC filing out charges against two largest crypto exchanges, significant fear has been induced in the market. The declining balance on the exchanges which is generally considered to be a bullish sign is possibly the result of waning trust of the investors who are also preferring to take more self custody.
In particular, with Binance halting its USD services and delisting several trading pairs, it could be a possible reason for the exchange to have experienced more outflows than Coinbase. Binance has been charged by both SEC and the CFTC and some expect the DoJ to take steps against it for money-laundering. However, it remains to be seen how investors react as both lawsuits play out in the coming weeks.