Research: Binance led 2017 ‘dump money’ Bitcoin investment; FTX leads 2022 cycle

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.

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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