The aftermath of the 2022 crypto collapse continues to reverberate, as recent research sheds light on the role of large account holders in fueling the crypto bank runs.
A study conducted by the Federal Reserve Bank of Chicago and released in May exposed the significant impact of major account holders on the crypto bank runs witnessed last year.
The research highlighted that the run on major crypto platforms was primarily instigated by customers holding substantial amounts, including sophisticated institutional clients. Notably, platforms like Celsius experienced a massive withdrawal of 35% in June, predominantly from whale accounts with balances exceeding $1 million.
Moreover, the study revealed that high-net-worth individuals with investments surpassing $500,000 were the quickest to withdraw funds and pulled out a higher proportion of their holdings.
One of the most drastic episodes occurred on the FTX platform, where customers withdrew a staggering 25% of their investments in a single day, contributing to an estimated outflow of 36.7% over a span of just five days.
The research utilized bankruptcy filings to analyze customer fund outflows from five platforms: BlockFi, Celsius, FTX, Genesis, and Voyager Digital. Collectively, these platforms experienced an approximate $13 billion withdrawal during the respective bank runs.
According to the Chicago Fed, most of these platforms lacked sufficient safeguards against run risks leading up to the collapse of FTX in November.
Notably, researcher Jonathan Rose, a historian of the Federal Reserve System, emphasized that bank runs, such as the recent Silicon Valley Bank collapse, can unfold even more rapidly than crypto bank runs.
The study concluded that consumers and investors are now more cognizant of the risks associated with high-risk, high-yield crypto investments compared to the previous bullish market of 2021.
The crypto market experienced a significant downturn following the bank runs, hitting a low point of $820 billion in November 2022. While there has been a recovery in 2023, sentiment remains predominantly bearish, with regulatory pressure intensifying. Nonetheless, markets have seen a 44% increase from their lows last year.
