Key Points
- FTX’s bankruptcy in 2022 highlighted the importance of crypto exchanges maintaining sufficient reserves.
- Major exchanges have increased their Bitcoin reserves and adopted the Proof-of-Reserves (PoR) standard for transparency.
FTX, a cryptocurrency exchange, filed for bankruptcy two years ago in November. This event highlighted serious issues in its control systems, particularly its inability to maintain adequate reserves to fulfill user withdrawal requests.
This incident underscored the need for transparency and reliable reserve reporting among all cryptocurrency exchanges. It also made stakeholders acutely aware of the risks exchanges face if they lack sufficient reserves. Inability to meet withdrawal requests can damage user confidence and risk loss of funds. Adequate reserves are also essential for liquidity and order execution, particularly during periods of market volatility.
Changes in Crypto Post-FTX
FTX’s collapse was a significant event in the history of the crypto industry. It caused a loss of investor confidence and led to significant changes in the structure and functioning of the crypto market. The prices of Bitcoin and other major cryptocurrencies fell, reflecting institutional players’ fear and distrust. This led many investors to question the safety and stability of cryptocurrencies and exit the market.
Security became a top priority. Many crypto exchanges and projects started implementing measures to protect users’ funds, such as two-factor authentication, monitoring systems, and transaction analysis for suspicious activity. New security standards and solutions emerged to prevent loss of funds due to hacks or fraudulent activities. Among these, the PoR standard became popular, which allows cryptocurrency exchanges to publicly show that they have enough assets in reserve to cover all user balances.
Bitcoin Reserves on Major Exchanges
Among the exchanges with significant Bitcoin reserves, only Coinbase does not publish PoR reports. Major exchanges like Binance have seen their reserves increase by 28,000 BTC, or 5%, reaching 611,000, despite pressure from U.S. authorities in 2023. Binance also shows the smallest reserve decrease over the entire period, not exceeding 16%.
Three key exchanges—Coinbase Advanced, Binance, and Bitfinex—hold 75% of all Bitcoins held by exchanges. Their combined reserves amount to 1.836 million BTC, which is 9.3% of the total amount of Bitcoins in circulation. The remaining 17 exchanges hold a total of 684,000 BTC.
Binance, Bitfinex, and OKX have experienced small decreases in reserves. Binance, however, is the only exchange that has not seen significant drawdowns in its history. The most significant decline in Binance’s reserves was 15%, which occurred in December 2022, shortly after the FTX crash. Binance faced significant criticism and distrust over its reserve report at the time. Despite this, Binance’s reserves have recovered and are currently down only 7%. Other major exchanges like Bitfinex and OKX have also seen slight declines, with Bitfinex down 5% and OKX down 11%.
While industry leaders like Binance and Bitfinex have managed to bolster their reserves since the FTX crash, the situation remains tense. Major players like Coinbase’s failure to publish PoR reports indicates that the path to full transparency is still long. However, the current reserve dynamics suggest an intention to improve and increase user trust. The FTX bankruptcy highlighted the need for crypto exchanges to demonstrate that they have sufficient reserves. This has led to a shift where users prefer exchanges that can prove their assets on-chain, pushing the industry to adopt PoR practices and help rebuild trust.
