© Thomson Reuters FILE PHOTO: Illustration with the words "Cryptocurrency Market", a stock chart and an image of cryptocurrenciesElizabeth Howcroft
LONDON (Reuters) - Crypto investors are increasingly wary of who they do business with, fueled by the sudden collapse of Celsius Network, Voyager Digital, FTX and others last year amid fears of a looming regulatory crackdown. putting more pressure on companies I will post the rest.
According to Xclaim, the crypto platform's recent outages have locked customers out of assets now valued at around $34 billion, allowing lenders to negotiate those claims.
To protect themselves, institutional cryptocurrency investors are turning to exchanges that provide higher asset protection, increased due diligence on trading partners and lower trading volumes, among other new risk management measures, according to the CEO and industry data.
"Investors in this asset class have learned their lessons the hard way and are now much more selective about who they trade," said Samed Buaynaya, portfolio manager of digital assets at London-based hedge fund Altana Wealth. .
Binance.US and Coinbase Global are the latest cryptocurrency exchanges to come under scrutiny after the US Securities and Exchange Commission (SEC) sued the pair for allegedly violating its rules, with industry leaders expecting further counter-action. Binance and Coinbase deny the regulator's allegations.
Altana now prefers exchanges that allow it to deposit and hold its assets with independent third-party custodians, such as UK Copper and Fireblocks from the US. Because Binance didn't give Altana that option, hedge funds rarely leave overnight balances on Binance, Buainaya said.
Binance did not respond to a request for comment, but said in a statement last week that "customer funds are always safe."
Coinbase says the assets on its platform are safe and the SEC litigation will not affect its operations.
Anatoly Krachilov, chief executive of London-based Nickel Digital Asset Management, said that almost all of its transactions now take place on exchanges that allow OTC settlements, meaning that assets are settled and kept separate from exchanges, compared to 5% before the FTX crash.
Declining balances of stablecoins and ether on exchanges suggest that users are withdrawing their assets from exchanges, although it is difficult to determine what percentage of those assets are moving to storage solutions, said Martin Lee, a data reporter at blockchain tracker Nansen.
"We're seeing a pretty significant increase in commercial companies looking for a model to continue trading on exchanges while protecting their capital," said Stephen Richardson, Chief Executive Officer of Fireblocks.
Copper also said it has seen an increase in requests for OTC solutions.
BINANCE'S "INCORRECT" BREAKDOWN
Investors flocked to cryptocurrencies when interest rates were low, pushing the market to a $3 trillion peak in 2021. But they became cautious when prices spiked, sending prices crashing and causing a fatal liquidity crisis for some cryptocurrency companies. According to CoinGecko, the market capitalization of cryptocurrencies has fallen to around $1.1 trillion.
European cryptocurrency manager CoinShares has stepped up its due diligence after losing £26 million ($32.65 million) in the FTX collapse. “It now monitors business partners regarding their operations, cyber security mechanisms, credit risk and exposure to different cryptocurrencies,” says CEO Jean-Marie Magnetti.
And while CoinShares used to classify markets as red, yellow and green, the system is now "very simple," Mognetti said. "It's like red or green. No more amber."
The cryptocurrency industry remains risky with highly volatile assets. Financial regulators such as the SEC say many cryptocurrency companies are breaking the rules, meaning risk management still lags behind the traditional financial sector.
While the SEC crackdown on Binance.US raises questions about its future, traders say trading on Binance is inevitable. According to Kaiko, it is the world's largest stock exchange, accounting for about 60% of global trading volume.
The American branch of Binance said last Thursday that it was suspending deposits in dollars. Two days ago, the SEC asked the court to freeze his assets. The SEC alleges that Binance and its CEO Changpeng Zhao secretly controlled and transferred customer assets.
"It's an inevitable risk that we all carry with us in cryptocurrencies: We risk being uncomfortably focused on a major exchange called Binance," Nickel's Krachilov said.
He warned that a more dramatic exchange crash "could lead to a nuclear crypto winter."
When it comes to riskier trades, US crypto investor Arca aims to reduce its exposure by breaking up large transactions into smaller pieces, said Wes Hansen, director of trading and operations at Arca, without naming specific companies.
Related requests are "much more intense and frequent," while the company also has control over Twitter, which companies can contend with, Hansen said.
"Everyone is very scared in the market right now," he added.
(Reporting by Elizabeth Howcroft; Editing by Michelle Price and David Gregorio)