Despite soaring prices for Bitcoin and other digital currencies, several crypto exchanges are experiencing major net capital outflows as allegations of fraud and manipulation create market volatility for the young industry. Withdrawals from trading platforms including Bitfinex, BitMEX, Binance and Kraken have exceeded inflows by roughly $622 million in the five-day period ended Wednesday, according to data from TokenAnalyst, a London-based blockchain research firm, per a detailed story in Bloomberg as outlined below.
Crypto Exchanges Seeing Major Net Capital Outflows
- Bitfinex
- BitMEX
- Binance
- Kraken
Source: Bloomberg
Bitcoin's Share of Crypto World Increases
It may seem counterintuitive that funds are being pulled from crypto exchanges just as Bitcoin has surged. The currency has risen about 100% this year and by over 55% in the last thirty days amid upheaval in the broader stock market. Yet experts say it's logical that investors spooked by turbulence and negative news in the crypto universe would favor what they view as the most secure asset in the group: Bitcoin.
That's illustrated by Bitcoin’s rising market share as a percentage of the entire crypto universe. It has increased from 53% at the start of the year to 60%, according to data provider CoinMarketCap.com.
“That Bitcoin, which is clearly the quality asset in the space, has outperformed in this recent rally is likely the result of it not only breaching the psychologically important $6,000 level, but also some significant institutional and/or sovereign buying. These buyers would be expected to invest disproportionately in the most established and vetted asset — and that asset is clearly Bitcoin," said Josh Gnaizda, chief executive officer of Crypto Fund Research, per Bloomberg.
To be sure, withdrawals have even affected Bitcoin and even could distort the currency's pricing. Since April 26, net outflows of Bitcoin and Ether from Bitfinex reached $1.7 billion in the wake of reports that the New York attorney general was investigating the exchange for covering up nearly $1 billion in losses.
Tether Behind Bitcoin Volatility
According to Bloomberg, Bitcoin’s sharp rise last week could have been amplified by capital flight from Bitfinex and Tether, which are affiliated.
“Since Tether is insufficiently backed, it means that some of the reserves backing customer assets on exchanges are likely insufficient,” said John Griffin, a finance professor at University of Texas at Austin who has researched cryptocurrency market manipulation. “So smart customers will not custody their funds on exchanges and pull their crypto off exchanges. This could put further upward pressure on Bitcoin prices as one would rather take fake money and exchange it to Bitcoin.”
Looking Ahead
While Bitcoin faces its own share of challenges as the largest coin in the crypto space, growing institutional interest in trading the asset has helped bring Bitcoin into the mainstream and thus grant it more stability. Many bulls view Bitcoin’s recent surge, even amid negative headlines of fraud and manipulation, as signaling that the “crypto winter” is over.
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