The result of the survey shows that institutional investors increasingly rely on the crypto exchange infrastructure to store their assets. This is in stark contrast to the conventional advice in the cryptocurrency world and brings a number of serious risks with it, including that the exchange could be compromised.
It turned out that cold wallets were the second preferred method among such clients, while custodial services accounted for only 2.6%. Researchers have also noted that more than half of these clients stored no more than 10 bitcoins in this way (10 BTC is about $72,000 at the moment).
Storage of digital currencies in wallets to which private keys belong to third parties is considered risky, especially in the event of hacker attacks, of which the Binance crypto exchange itself was a victim in May 2019.
If you’re in a rush the Born2Invest business news mobile app helps you digest the crypto news summaries in small digestible chunks, helping you be up to date with the newest information in this field. Our team of experts puts the most important cryptocurrencies news at your fingertips.
Regulators are also requiring exchanges to block accounts without prior notice, until the owner has provided identity documents. Earlier, the leader of the movement Proof of Keys Thrace Mayer once again called for “getting rid of stock wallets” on January 3, the anniversary of the genesis-block Bitcoin. Mayer suggested that users transfer all their cryptocurrencies into wallets where they control their own private keys to protect themselves from capricious regulators.
Exchange storage choice
According to the research “Look at institutional players in the market”, prepared by a group of analysts, only 8% of institutional traders maintain direct control of their keys. This means that they are at the mercy of the decisions and security of a third party and would be considered an unacceptable risk by most cryptocurrency experts.
This may seem strange as institutional investors appear to be willing to take on a level of risk that they would not accept with traditional investment methods, such as stock. Many exchanges have opaque operating methods and often do not publish their financial statements, certainly not statements that are GAAP or IFRS compliant.
Investors trust centralized exchanges more
This behaviour appears to stem from the fact that institutional investors distrust decentralized or P2P platforms. The bias against P2P platforms is understandable but also demonstrates that a number of investors do not fully grasp how many cryptocurrencies function at a basic level.
A centralized exchange providers the veneer of respectability and security but unlike traditional stock exchanges there are little or no regulations covering their behaviour. There have also been a series of high profile security breaches that have resulted in large amounts of cryptocurrency being lost or stolen.
While P2P platforms are also opaque the key advantage of using them is that an individual is always in control of their own assets. Binance’s survey clearly demonstrates a greater need for education in the cryptocurrency markets and for better regulations surrounding reporting requirements for exchanges and storage procedures.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
First published in CLICKCHAIN, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.