How Bitcoin reserves of the largest exchanges changed since the FTX collapse

November marks the two-year anniversary of the FTX collapse, a landmark event that exposed critical vulnerabilities in the crypto market. FTX’s inability to maintain sufficient reserves to fulfill user withdrawal requests highlighted the risks of poorly managed exchanges and underscored the urgent need for greater transparency and reliable reserve reporting across the industry.

Since the FTX debacle, major crypto exchanges have significantly increased their Bitcoin reserves as a response to the growing demand for security and trust. These exchanges have come under heightened scrutiny, with regulators and users alike calling for improved transparency regarding their proof-of-reserves (PoR).

The FTX failure demonstrated how easily the lack of sufficient reserves can undermine an exchange’s ability to meet user requests, shaking user confidence and exposing them to the risk of losing funds. Liquidity and the ability to execute orders efficiently, particularly during times of market volatility, are essential for any exchange to maintain credibility. As a result, the industry has placed a stronger emphasis on implementing transparent reserve audits and proofs to ensure users that exchanges can handle withdrawals when needed.

In response to these concerns, CryptoQuant, a crypto analytics platform, released a study on the current state of proof-of-reserves (PoR) across exchanges, shedding light on the growing importance of transparency and reliability in this critical area. This move is seen as part of a broader trend toward rebuilding trust and restoring confidence in the crypto market, ensuring that exchanges are better equipped to handle customer demands without the risk of another FTX-like disaster.

How has crypto changed post-FTX?

FTX’s collapse in November 2022 caused a significant shift in the cryptocurrency market, leading to profound changes in how exchanges and users interact with the industry. The immediate aftermath saw widespread panic, with Bitcoin and other cryptocurrencies experiencing sharp declines. This triggered a loss of confidence among investors, with many deciding to exit the market or reduce exposure due to heightened fears of mismanagement and fraud.

In response, crypto exchanges and projects began focusing heavily on security, implementing stronger measures such as two-factor authentication, advanced monitoring systems, and improved detection of suspicious activities. This was done to protect user funds and prevent future hacks or fraudulent behavior.

One of the most important changes post-FTX was the adoption of Proof-of-Reserves (PoR) standards. Exchanges started publicly proving that they had sufficient reserves to cover user balances, ensuring transparency and preventing the risky practices that led to FTX’s downfall. By providing clear evidence that they weren’t over-leveraged, exchanges aimed to rebuild trust with their customers.

At the same time, regulators began to scrutinize the market more closely, pushing for clearer and more stringent regulations to ensure greater safety and stability. This included calls for stronger compliance with anti-money laundering (AML) and know-your-customer (KYC) rules.

As a result, more users have turned to decentralized finance (DeFi) and self-custody solutions to avoid risks associated with centralized platforms. Holding funds in non-custodial wallets or using DeFi platforms became more popular, driven by the desire for greater control over personal assets.

The changes sparked by FTX’s collapse have ultimately made the crypto space more focused on security, transparency, and accountability. While the incident caused temporary market turmoil, it has driven long-term improvements that are likely to restore trust and stability in the industry moving forward.

Major exchanges record Bitcoin outflow

Among major cryptocurrency exchanges, only Coinbase has not yet published Proof-of-Reserves (PoR) reports, which provide transparency regarding the amount of Bitcoin held in reserve. The other major exchanges, however, periodically release PoR reports, though with varying levels of transparency.

In 2023, despite facing increased regulatory scrutiny, Binance saw its Bitcoin reserve grow by 28,000 BTC (a 5% increase), bringing its total reserve to 611,000 BTC. Binance also experienced the smallest decrease in its reserves among major exchanges, with a drop of just 16% during this period.

Together, the three largest exchanges — Coinbase Advanced (830,000 BTC), Binance (615,000 BTC), and Bitfinex (395,000 BTC) — control 75% of all Bitcoins held on exchanges. Combined, their reserves total 1.836 million BTC, which constitutes about 9.3% of all Bitcoin in circulation. The remaining 17 exchanges hold just 684,000 BTC between them.

This concentration of Bitcoin on a few major exchanges highlights the dominance of these platforms in the crypto market, raising questions about centralization and the need for more robust PoR practices to ensure security and transparency.

Reserves landing

Currently, Binance, Bitfinex, and OKX have experienced only small decreases in their Bitcoin reserves, with Binance standing out as the only exchange that has not faced significant drawdowns in its history. Tracking the changes in reserves over time helps gauge each exchange’s ability to meet user withdrawal demands, providing insight into their financial stability and user trust.

Binance experienced its largest reserve decline of 15% in December 2022, shortly after the FTX collapse, which led to significant criticism and distrust over its reserve reporting. However, Binance has since recovered, with its reserves currently down by just 7%. Meanwhile, Bitfinex saw a 5% decrease, and OKX experienced an 11% drop.

While exchanges like Binance and Bitfinex have made efforts to stabilize their reserves post-FTX, the overall situation remains fragile. The failure of Coinbase to publish Proof-of-Reserves (PoR) reports signals that full transparency is still a long way off. However, the recent trends in reserve dynamics show that many exchanges are working to rebuild user trust.

As noted by Nick Pitto, head of marketing at CryptoQuant, the FTX bankruptcy underscored the importance of exchanges proving their reserves. This event has catalyzed a shift toward exchanges adopting PoR practices, helping to restore confidence and demonstrate that they have sufficient assets to back their users’ funds.