Another way to measure the dominance of crypto exchanges: the amount of funds in cold wallets

Collecting reliable data about crypto exchanges is not an easy task. In last year's widely circulatedBitwise report questionedExchange volumes declared by exchanges. After that, many exchange rated websites and analytic firms have proposed a number of new metrics to evaluate cryptocurrency exchanges and trading volumes.

However, these metrics have their drawbacks. They can exclude large exchanges, some of them are based on easily falsified indicators, such as the number of unique visitors to the site or ratings in application stores, in addition, the transparency of calculations for these metrics is also often not up to par.

Hoping to find a better, more transparent metricfor crypto exchanges, we decided to pay attention to data on the use of cold wallets with chain.info. Based on a number of assumptions about how funds are transferred between addresses of deposits, addresses of hot wallets and the address of a cold wallet, we analyzed the addresses of cold wallets associated with large exchanges and their funds.

Although this approach is not ideal, since it is stillrelies on some assumptions - and at the moment it is hardly possible to identify all cold wallet addresses with perfect accuracy - nevertheless, this method has a significant advantage compared to other metrics for cryptocurrency exchanges. Since this data is obtained by analyzing on-chain asset transfer data, it is quite difficult to falsify.

So, based on our analysis, which exchanges store the most bitcoins in their cold wallets?

Leader: of all cryptocurrency exchanges, Coinbase wallets currently have the largest number of bitcoins, and over the past year this figure has increased significantly. In addition, this growth was relatively stable and, apparently, did not depend on the ups and downs of Bitcoin prices. Coinbase's cold storage capacity is about to exceed 1,000,000 bitcoins.

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Clear dominance and sustainable growthCoinbase may be due to the fact that it attracts the most long-term/institutional investors who are less concerned about short-term price fluctuations.

What about other major exchanges?

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На графике выше видно сильное расслоение.Binance maintained its position as the second largest crypto exchange for most of the year, without any obvious trend in changes in the volume of assets in cold storage. Bitfinex started the year in third place, but its cold wallets depleted noticeably during the first quarter and only recovered to their previous values ​​towards the end of 2019.

Bittrex, Bitstamp and Kraken - the fourth, sixth and seventh largest exchanges at the beginning of the year - showed no pronounced trends regarding the volume of cold storage.

The most interesting thing, probably, in this regardlooks like Huobi. In 2019, it rose from fifth place to the position of the second largest exchange by the number of assets in cold storage. It was claimed that the bulk of PlusToken transactions were processed through Huobi, and if this is true, it could well serve as an explanation for such a sharp rise in our rankings.

Among the bottom four (those included in our analysis)exchanges - Coincheck, BitFlyer, Gate.io and OKEx - three have increased the volume of assets in their cold storage. Coincheck demonstrated an almost perfectly horizontal trend.

In short, based on the value of assets inCoinbase's cold wallets remain the largest cryptocurrency exchange, and over the past year, its gap from its closest competitors has only increased. For most exchanges, including Binance, Bitfinex, Bittrex, Bitstamp, Kraken and Coincheck, this figure has not changed much in 2019. Huobi, BitFlyer, OKEx and Gate.io have significantly increased the number of assets in cold storage.

Regarding our interpretation of the data oncold on-chain wallets, it should also be noted that some of the sharp vertical changes in the graph above may be caused by the discovery of new cold wallet addresses or delays in data synchronization, rather than immediate changes in exchange balances.

Exchange Token Price

Some of the exchanges we are considering offerown exchange tokens, which leads us to the question: will the profitability of these tokens for 2019 correlate with the amount of assets in the cold wallets of these exchanges?

There are two reasons why such a correlationIt would be logical to expect. Firstly, a larger number of user deposits on the exchange implies that more users trade on this exchange, which, accordingly, means higher income for the exchange itself. Secondly, the large volume of cold storage indicates a higher level of guarantees for users in the event of a hacking exchange, fraud or other cases of loss of part of user funds, and this may mean that users are more willing to hold the token of this exchange.

From our list, our own tokens offerBinance, Huobi, Bitfinex, Gate.io and OKEx. We calculated the profitability of these tokens in relation to bitcoin, and not to fiat currencies (in order to exclude from the equation the volatility of bitcoin itself).

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Results show that the first quarter of 2019The year for exchange tokens was especially good, the growth was more than 100%, but in the rest of the year their profitability was not so impressive. At the end of the year, the best result was shown by OKEx (2x) and Huobi (1.3x) tokens. Binance Coin showed an impressive return by mid-year, but could not stay at that level. Tokens Gate.io and Bitfinex - both for 2019 lost in value.

Looking at these data for 2019, you can seesome correlation between the amount of funds in the cold storage and the price of the exchange token. Huobi and OKEx showed growth in both metrics, while Bitfinex and Binance in both metrics remained at the same level. An exception to the general rule was Gate.io, whose token lost in value against the background of an increase in funds on cold wallets. This may be due to the fact that Gate.io is the smallest exchange in our sample, and therefore the growth of assets in cold wallets in absolute numbers could not have a significant impact.

Although the amount of funds on cold wallets is hardlycan be called an ideal metric for evaluating cryptocurrency exchanges, this is another interesting data point that can become a useful addition to data on the number of users, trading volumes and income of cryptocurrency exchanges. In addition, the amount of funds in cold storage is relatively difficult to fake or to stage.

 

 

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