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Why Are Crypto Investors Moving Their Holdings to Wallets?

et’s start off with some good news — Bitcoin and the associated cryptos have hit an optimistic tone with the onset of the new year. According to a CryptoQuant, Bitcoin's (BTC) price appreciation has led to a spike in BTC’s market-value-to-realized-value ratio (MVRV) — meaning crypto is now in a ‘bullish mid-term stage’. During the last four bear cycles, BTC’s MVRV fell below 1 to underline bottoms in the market. With the same above 1 now, the analysts expect volatility & magnified moves to pick up.

In addition, CoinGlass data reveals that BTC’s Open Interest has risen by 21% since January 1. A hike of such a magnitude is usually a sign of incoming bullish sentiment in the market. And all these positive developments have coincided with BTC’s hash rate hitting a new all-time high (ATH) — more miners are now engaged in keeping the network secured and decentralized.

But one of the biggest trend shifts that we have seen in the last 12 months or so has been the movement of crypto funds from exchanges to personal and private wallets. Wallets are usually considered a safer way of hosting your digital assets due to their security features & private keys over which investors have complete control. Crypto exchanges, on the other hand, are considered risky since they are often the target of hacking attempts and have often suffered several high-profile security breaches.

Not that this was enough of a reason for crypto investors to secure their digital assets in personal wallets, high profile collapses of Celsius and FTX in 2022, just magnified such movement. As you can see in the chart above, many of the contagion events in the past two years have led the crypto funds to be removed from exchanges to such wallets. The spikes in the chart coincide with market-moving events like the ones mentioned before.

As the confidence in exchanges waned, there has been a shift among retail investors too, according to CoinMetrics. The number of Bitcoin held in smaller wallets (those with under 10 bitcoin) rose to 3.35 million as of Jan. 11, up 23% from the 2.72 million held a year ago. As a percentage of total bitcoin supply, wallet addresses holding under 10 bitcoin now own 17.4%, up from 14.4% a year ago.

And finally, Chainalysis states that the 7-day average of the daily movement of funds from centralized exchanges to personal wallets jumped to a six-month high of $1.3 billion in mid-November. The data also showed that Big investors with transfers of above $100,000 were responsible for about 68% of those flows. Generally speaking, novice retail traders/investors with limited knowledge tend to keep their holdings on big-name exchanges, while ‘hodlers’ with advanced skills tend to favor private wallet holdings.

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