Binance led 2017 ‘dumb money’ Bitcoin investment; FTX leads 2022 cycle

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Bit­coin (BTC) with­draw­al pat­terns on cen­tral­ized exchanges have changed sig­nif­i­cant­ly over the past five years.

Cryp­toSlate analy­sis of Glassnode data on BTC’s aver­age with­draw­al price on top exchanges like Coin­base, Gem­i­ni, Binance, FTX, and Bitfinex reveals an inter­est­ing pattern.

Bitcoin average withdrawal price across exchanges
Bit­coin aver­age with­draw­al price across exchanges (Source: Glassnode)

The chart above showed that in the ear­ly days of cryp­to adop­tion, par­tic­u­lar­ly in 2017 when Binance was estab­lished, the exchange saw most of the dumb mon­ey inflow to crypto.

Accord­ing to Investo­pe­dia, dumb mon­ey refers to retail investors who buy pri­mar­i­ly because of mar­ket hype and the fear of miss­ing out. Usu­al­ly, this group of investors tends to buy when the price is high or close to the peak.

Because they buy close to the peak, they end up sell­ing or with­draw­ing when the val­ue of the asset declines. This was evi­dent in the ear­ly days of Binance, when most of the with­drawals on the plat­form occurred after Bit­coin peaked.

This sug­gests that most users were not with­draw­ing at max­i­mum prof­its even if they were not at a loss. Thus, the real­ized out­flow price ends up exceed­ing the current.

How­ev­er, the emer­gence of new­er exchanges like FTX and Gem­i­ni saw the move­ment of the “dumb mon­ey investors” away from Binance. Since these exchanges were launched in 2019, their aver­age with­draw­al price has been very high.

For ref­er­ence, the aver­age with­draw­al price on Gem­i­ni and FTX was at a record high dur­ing the Ter­ra LUNA mar­ket implo­sion. Also, FTX’s recent col­lapse saw retail traders mas­sive­ly with­draw their assets from the bank­rupt exchange.

In com­par­i­son, the aver­age with­draw­al price on Bitfinex has remained low and sta­ble since 2017. This sug­gests that the exchange has a more sophis­ti­cat­ed user base, i.e., smart money.

Investo­pe­dia describes smart mon­ey investors as insti­tu­tion­al and knowl­edge­able investors who have a bet­ter under­stand­ing of the mar­ket and use this to make informed deci­sions. This class of investors has the tools and the expa­tri­ate to make bet­ter invest­ment decisions.

Mean­while, only Bitfinex has a Bit­coin out­flow real­ized price below the aver­age for all exchanges.

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