Paranoid? The domino downfall of FTX and other crypto custodians is enough to make the most trusting investor grab their bitcoin and shove it under the mattress.
Indeed, holders big and small are taking "self-custody" of their funds, moving them from crypto exchanges and trading platforms to personal digital wallets.
In a sign of this shift among retail investors, the number of bitcoin held in smaller wallets - those with under 10 bitcoin - rose to 3.35 million as of Jan. 11, up 23% from the 2.72 million held a year ago, according to data from CoinMetrics.
As a percentage of total bitcoin supply, wallet addresses holding under 10 bitcoin now own 17.4%, up from 14.4% a year ago.
"A lot of this really depends on how frequently you're trading," said Joshua Peck, founder of hedge fund TrueCode Capital. "If you're just going buy and hold for the next 10 years, then it's probably worth making the investment and learning how to custody your assets really, really well."
The stampede has been turbocharged by the FTX scandal and other crypto collapses, with large investors leading the way.
The 7-day average of daily movement of funds from centralized exchanges to personal wallets jumped to a six-month high of $1.3 billion in mid-November, at the time of FTX collapse, according to data from Chainalysis.
Big investors with transfers of above $100,000 were responsible for those flows, the data showed.
Where are my keys?
Not your keys, not your coins.
This mantra among early crypto enthusiasts, cautioning that access to your funds is paramount, regularly trended online last year as finance platforms dropped like flies.
Self-custody's no walk in the park, though.
Wallets can range from "hot" ones connected to the internet or "cold" ones in offline hardware devices, although the latter typically don't appeal to first-time investors, who often buy crypto on big exchanges.
The multi-level security can often be cumbersome and expensive process for a small-time investor, and there's always the challenge of guarding keeping your encryption key - a string of data similar to a password - without losing or forgetting it.
Meanwhile, hardware wallets can fail, or be stolen.
"It's very challenging, because you have to keep track of your keys, you have to back those keys up," said Peck at TrueCode Capital, adding: "I'll tell you it's a very challenging prospect of doing self custody for a multi-million-dollar portfolio of crypto."
Institutional investors are also turning to regulated custodians - specialized companies that can hold funds in cold storage - as many traditional finance firms would not legally be able to "self-custody" investors' assets.
One such firm, BitGo, which provides custodian services custody for institutional investors and traders, said it saw a 25% increase in onboarding inquiries in December versus the month before from those looking to move their funds from exchanges, plus a 20% jump in assets under custody.
David Wells, CEO of Enclave Markets, said trading platforms were extremely cautious of the risks of storing the investors' assets with a third party.
"A comment that stuck with me was 'investors will forgive us for losing some of their money through our trading strategies, because that's what they sign up for, what they're not going to forgive us is for being poor custodians'."
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