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This is the most catastrophic bankruptcy of a custodian in the digital asset market since Mt. Gox, which collapsed in 2014. This study examines the Bitcoin strong hands' reaction to the FTX bank run and how people are trying to find safety by keeping their bitcoin privately.

The events of November 6–14, 2022, in the digital asset market are, to put it mildly, astonishing, startling, and disheartening. One week saw one of the most well-known and high-volume exchanges, FTX.com, go down.

• Experienced a bank run.

• Client withdrawals have been stopped.

• Binance's purchase negotiations fell through.

• As much as $10 billion in missing client money was uncovered.

• Allegedly, $500 million was stolen from exchange wallets.

• FTX US and its sister company filed for Chapter 11 bankruptcy.

• Brought to light what appears to be wrongdoing on the part of the Alameda/FFTX company.

Millions of consumers would be left with imprisoned cash, years of positive industry image would be destroyed, and new credit contagion risks would emerge, many of which would go unnoticed for a long time. The fall of Mt. Gox in 2013—in which a major custodian was shown to be fractionally reserved—comes to mind in light of this development.

The crypto market is in disarray, but investors should keep in mind that the underlying cryptography is secure and that digital assets exist in a free market. Bitcoin has no safety net, and the deleveraging of the whole business will burn away any waste or corruption, but it will be painful. The market will mend, recover, and come back stronger in the months and years ahead thanks to the increased emphasis on exchanging proof-of-reserves and the drive toward self-custody.

We shall discuss the following topics in this week's report:

• Specifics on the recent thefts from on-chain FTX wallets

• greater repercussions for personal finances and parenting arrangements.

• Effects on the conviction of long-term Bitcoin holders have been observed.

Translations

Aside from the original English version, This Week on Chain has been translated into Spanish, Italian, Chinese, Japanese, Turkish, French, Portuguese, Farsi, Polish, Arabic, Russian, Vietnamese, and Greek.

Onchain Weekly Report

Here you can see the Week Onchain Newsletter's live dashboard, along with all featured charts. Our weekly video report is published every Tuesday and delves further into this dashboard and all of the data it covers.

Fractional Reserves

Eventually, the truth will (hopefully) emerge about how FTX lost client deposits and blew a hole of $8 billion to $10 billion in their balance sheet. However, there are numerous indications that money was misappropriated through the sibling hedge fund Alameda Research.We direct readers to the following resources for context and analysis of the triangle formed by Alameda, FTX, and Binance:

• Thread on Twitter describing the movement of money from Alameda through FTX to Binance.

• Information visualization dashboard displaying the inter-entity lifetime flow of money.

• Report in video format detailing these preliminary results.

Over the years, several data sources have had difficulty keeping up with FTX's exchange reserves. In our own observations, we found that FTX used a somewhat sophisticated peeling chain method for their BTC holdings. The cluster's FTX reserves peaked at around 102k BTC in April/May of this year. In the latter half of June, this dropped by a whopping 51.3%.

Since then, reserves have steadily decreased, culminating in this week's bank run when they were essentially at nothing. After the collapse of LUNA, 3AC, and other lenders in May and June, allegations of Alameda misappropriating client deposits suggest the Alameda-FTX company may have suffered a serious impairment to its balance sheet during that time period.

There have been two big drops in the amount of ETH owned on FTX:

• With a decrease of 576k ETH (55.2% in reserve value) in June

• This week, the price of ETH dropped from 611k to 2.8k (-99.5%).

Just as with Bitcoin, this means that almost no ETH is left in wallets controlled by FTX after the bank run.

Looking into stablecoin reserves, we can observe that on FTX, the total reserves began to decrease precipitously on October 19th, from $725 million to almost nothing by the end of the following month.

After the June sell-off, stablecoin balances skyrocketed to a new all-time high, while BTC and ETH holdings fell dramatically. This may provide more evidence that some degree of balance sheet impairment had happened at that time, requiring the use of BTC and/or ETH collateral in exchange for the use of stablecoins in a swap or loan.

There's still a lot of mystery around what went down between FTX and Alameda, but there's also a growing body of on-chain evidence suggesting problems emerged in May or June. Consequently, the events of the last several months may be explained as nothing more than a prelude to the eventual collapse of the exchange.

Release of Updated Dashboards

The new dashboards we've developed provide a way to track the growth and decline of Bitcoin's investor base, as well as the value of their holdings. These graphs are taken from our entity balance change dashboard (T3) and are complemented by the data in our address cohort dashboard (T2).

Safety in Self-Custody

As holders want the security of self-custody, there has been an unprecedented rate of coin withdrawals from exchanges. Since November 6, when rumblings of issues at FTX were still in their infancy, the following charts have tracked the aggregate balance change of exchanges, investor wallet cohorts, and miners.

The 7-day drop of 72,9K BTC in total BTC balance on exchanges is one of the greatest such drops in history. Only April-2020, November-2020, and June-July 2022 may be compared to this.

To a similar extent, Ether has had 1.101 million ETH removed from exchanges in the last week. This is the greatest 30-day decrease in balance since September 2020, during the height of "DeFi Summer," when demand for ETH skyrocketed for use as collateral in smart contracts.

While this week saw a decrease in BTC and ETH exchange reserves, approximately $1.04 billion was deposited into exchanges on November 10th through stablecoins such as USDT, USDC, BUSD, and DAI. As far as daily net inflows go, this is the seventh highest ever.

The total value of stablecoins held in exchange reserves has now reached $41.186 billion as a result. There has been a significant rise in BUSD supremacy, as shown by the over $21.44B in BUSD reserves. This is probably due to Binance's increasing dominance as the world's biggest exchange and the recent concentration of its stablecoins towards BUSD.

There may be a movement in market preference since USDT exchange reserves have decreased marginally over the last several months while USDC reserves have decreased significantly.

Interestingly, smart contracts are a major source for stablecoins, with monthly withdrawals from Ethereum smart contracts totaling $4.63 billion. This helps to underline how critical access to hard currency has become as of late.

Due to this, the market has entered a peculiar phase in which centrally generated stablecoins are flooding exchanges while BTC and ETH are being removed from them at unprecedented rates. The two-part model is shown in the following chart:

There was a net outflow of BTC and ETH from exchanges, as shown by the absence of them in the barcode trail.

The oscillator displays the difference between the net USD flow of BTC and ETH and the net inflow of stablecoins. When is greater than zero, it means that more "purchasing capacity" than usual has been poured into exchanges in the form of stablecoins.

There has been a net rise of $4.0 billion every month in the purchasing power of stablecoins on exchanges, as seen above. This illustrates that investors tend to prefer retaining trustless BTC and ETH assets over centrally produced stablecoins at the present moment, notwithstanding the market's volatility.

This is a really interesting signal, and one might make the argument that it reflects the market's need for safety in self-custody and trust in the underlying assets.

Bitcoin balances swell

Given the massive withdrawals of bitcoin from exchanges, it is clear that the FTX event has caused a noticeable shift in investor behavior across all wallet cohorts. Despite the FTX crash, on-chain wallets saw a net rise in balances across the board, from shrimp ( 1 BTC) towhaless (> 1,000 BTC). For several groups, this is an almost complete reversal from the steady distribution pattern of previous months.

In the last 30 days, the Shrimp cohort ( 1BTC) has increased by +51,400 BTC, with a +33,700 BTC gain in the past week alone. Beyond the high point of the bull market in 2017, this amount of balance inflow is the second highest ever.

The Crab group, which consists of investors with 1–10 BTC, is also quite active, having removed 48.7k BTC from exchanges at prices that are getting close to the highest acquisition rates seen during the 2017 bull market. This is a new and compelling all-time high for the percentage of total Bitcoin supply held by those with more than 10 BTC.

We use the terms "fish" and "sharks" to refer to groups of bitcoin wallets containing between 10 and 1,000 bitcoins, respectively. The wealth of these members of the group is comparable to that of wealthy people, large corporations, and large institutions.

We have had one of the highest 7-day rises in cohort balances in history, at 78.0k BTC, after many months of decreasing growth. An attitude of "withdraw now, ask questions later" may be at play here.

We have only looked at the inflow and outflow of coins directly via exchanges for whales, here defined as those having more than 1,000 BTC. This will more accurately represent these massive organizations' genuine investor activity.The average 30-day change in the balance of all whales is +53,7K BTC, indicating that they have been net purchasers in recent weeks.

However, their on-net activity this week has been far lower than that of previous cohorts, with a net gain of just 3.57k BTC.

Last but not least, the industry of Bitcoin miners, already a target of regulatory scrutiny, has been hit hard by the recent drop in coin price. As the price of hash power continues to fall, miners have spent around 7.76k BTC this week, or about 9.5% of their reserves. Proof that Bitcoin miners are very cyclical in their activity, this is the largest monthly miner balance fall since September 2018.

HODLers Resolve

The last half of this newsletter will focus on the reaction of Bitcoin HODLers, with the goal of determining whether there has been any visible erosion of their original commitment. If there was ever a moment for HODLers to lose trust in the asset, it is certainly now, given the size of the damage and the far-reaching ramifications of the FTX collapse.

Since November 6th, the quantity of bitcoins held by long-term holders—those who are statistically least likely to spend their coins—has decreased by -61,500. A significant amount of bitcoin ($48,100) was spent in the previous week. The above-described shift in the size of things is not yet large enough to imply widespread loss of belief as compared to previous norms. But if this continues, it might imply a shortage of LTH.

The weekly total of revived supply older than 1 year is shown here, along with a 4-year Z-score. This week, 97,45k BTC older than a year were spent, possibly returning them to circulation.

It's a +0.83 sigma shift over 4 years, which is significant but not yet unprecedented. Similar to LTH Supply, this indicator warrants close attention in case it signals the beginning of a new long-term pattern.

Also, the median age of a bitcoin has increased to slightly over 90 days, which is three times what was seen in the low volatility environment of September and October. Spending in older currencies has increased, which parallels highs seen during capitulation sell-off events and the 2021 bull market profit taking.

If dormancy continues to rise or rises to an unusually high level, it may be an indication that widespread fear has taken hold within the HODLer community.

Now that we have a weekly total of coindays destroyed, we can return to the 4-year Z-score formulation we used before (CDD). Clearly, this week's volume of coinday destruction was +1.9 standard deviations above the norm, marking the end of a long period of an exceptionally low coin supply. This week, 165 million coindays have been burned, the same as squandering 452,200 BTC stored for a year.

In general, the HODLer community has reacted with some degree of sudden alarm. Yet, the enormity of the situation suggests that this might be to be anticipated. The question of whether or not these surges moderate over the next several weeks, which would indicate that the current reorganization is more of an "event" than a "trend," is perhaps of greater importance.

A general lack of conviction and worry may be at play, though, if there was a prolonged increase in the spending of older coins and a decrease in the availability of LTH.

Conclusions

The failure of FTX has been devastating and is a black eye for the whole sector. When people who have put their faith in a platform become caught and their money disappears, it is a genuinely horrible thing. Bitcoin and the industry as a whole will emerge stronger from this unfortunate forest fire and deleveraging catastrophe than they were before.

FAQ

What is Glassnode in crypto? Glassnode is a data intelligence platform for the bitcoin and blockchain industries. By concentrating on the most crucial input source in the space—data from the blockchains themselves—the apps that Glassnode develops give new methods of giving insights into blockchains and cryptocurrencies.

What does it mean when a price is "Realized"? The term "realized price" refers to the cash market price after deducting for quality, shipping costs, and anticipated demand.

Can you explain how the market cap of Bitcoin is determined? The total market capitalization realized is the latest price of each UTXO multiplied by Due to the fact that certain digital currencies may become untraceable or unusable as a result of technical difficulties, Realized Cap was developed to devalue such tokens after an extended period of inactivity.

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