Exchange Risk: Lessons, Insights, and Peace of Mind with Ainslie Storage Accounts 

The Centrality of Exchanges

Exchanges are increasingly becoming the nerve centre for digital asset trading, but recent setbacks such as the FTX collapse in November 2022 remind us of the inherent vulnerabilities associated with centralized platforms. Notably, Bitcoin holdings on centralized exchanges hit an all-time high in March 2020, boasting a staggering 3.203 million BTC. However, data since then shows a consistent downward trajectory, with the total Bitcoin balance on these platforms now at a five-year low of 2.256 million BTC.

It’s critical to clarify the scope of this data, as these figures solely represent BTC held in direct wallet clusters associated with exchanges. They do not include Bitcoin stored in dedicated custodial services or alternative investment vehicles like ETFs and trusts (e.g., GBTC, Microstrategy).

Given the pivotal role that exchanges play in the cryptocurrency market, the development of a comprehensive risk assessment framework, grounded in on-chain data, is more vital than ever for both individual and institutional investors.

The Increasing Significance of Exchange Fund Flows

One of the week’s standout developments is the rising prominence of a composite metric known as “Exchange Fund Flow.” This advanced metric aggregates both the inflow and outflow volumes to exchanges and applies a 90-day average for more refined trend analysis. The adoption of this metric provides a robust tool to examine the often-complex dynamics between market entities and exchanges.

The Weight of Exchange Fund Flows in Market Economics

As of now, Exchange Fund Flows account for a significant 54% of all economic activity within the cryptocurrency market. This large share underscores the critical role that exchanges continue to play in shaping the digital asset ecosystem.

A Historical Context to Exchange Fund Flows

For a more thorough understanding, it’s worth noting that the dominance of Exchange Fund Flows had reached an all-time high of 58% in June 2021. However, this number took a sharp dive due to a host of contributing factors, including globally accelerating interest rates and constricting liquidity. These factors, in tandem, ushered in a bear market phase.

Global Financial Dynamics: An Underlying Factor

This dip in the dominance of Exchange Fund Flows was not an isolated incident but coincided with more extensive shifts in the global financial landscape. Rising interest rates and tighter liquidity conditions globally were major catalysts for the downturn in the market.

A Resurgence Post-FTX

Interestingly, the dominance of Exchange Fund Flows has shown signs of resurgence, starting in October 2022. This uptick is in sync with a recovery in global liquidity and a general market rebound, particularly after the challenges arising from the collapse of the FTX exchange.

A Macro-Level Uptrend: What It Means for the Market

Taking a broader view, despite the inherent market fluctuations, Exchange Fund Flows are exhibiting a macro uptrend. This long-term increase in the metric’s significance suggests that exchanges will likely continue to play an increasingly important role in the digital asset market. Such a trend could have far-reaching implications for market liquidity, transaction volumes, and the overall health and stability of the cryptocurrency market.

 

The Ainslie Storage Account: The Ideal Solution for Safeguarding Your Investment

The risks associated with losing physical wallets, private keys or funds on centralised exchanges are non-negligible. Ainslie Storage Accounts offer a viable alternative, providing the potential for significant crypto gains without the accompanying anxiety of asset loss. Our human consultants are available to answer your questions, conduct live trades, and offer a secure storage solution. Our Storage App Dashboard allows you to monitor your investment’s current value and transaction history, further simplifying your end-of-financial-year tax obligations.

Navigating the Future with Enhanced Tools and Secure Solutions

If you have a crypto storage account with Ainslie, your funds are in their cold wallets, audited, and held in Reserve Vault. We do not touch your crypto until YOU decide to sell. You could leave your crypto assets with us for a lifetime, and they will not be touched without your authority.

You can also choose to have your funds loaded onto an Ainslie Cold Wallet – which we print for you in-store. This gives the FULL custody of your crypto assets to you. We produce your wallet in front of you (for the avoidance of doubt) on an offline computer and give you the only copy to take home. Put simply, there is NO online footprint of your keys.

Gold and Silver Standard (AUS and AGS), our gold and silver-backed tokens, are the most transparently backed tokens in the digital asset industry. At any time, you can audit the blockchain to see that the number of tokens minted correlates to the amount of gold and silver held in the Reserve Vault. Each bar on the database is checked by a globally respected  assurance firm to ensure both the weight and serial numbers recorded on the database match what is stored in Reserve Vault. A report of factual findings is produced for anyone to see at any time – available on goldsilverstandard.com

Trust – hard to build, easy to break. Ainslie is built on trust. Ainslie means trust. We will continue to provide world-class asset custody solutions, built on the ideals for which we have operated for almost 50 years.

So if you are looking to purchase crypto, consider an Ainslie Storage Account or visit our Brisbane and Melbourne offices to take full control of your digital assets.