 |
| By Jurica Dujmovic |
I’d say it’s clear by now that this market will punish investors severely for adhering to anything that isn’t true to the spirit of the crypto movement.
Centralization, for example — which is the opposite of what crypto stands for — is one of those detrimental trends that has cost plenty of investors dearly in recent weeks as centralized lending platforms left and right have been caught in liquidity squeezes.
And in response, these platforms have been freezing withdrawals to ensure they can fulfill their obligations … preventing users from accessing their own assets!
Crypto is only as secure as its weakest link, and in this series of unfortunate events, we’ve seen how these centralized middlemen — the anathema of crypto values — have proven why they shouldn’t be trusted with custody of your hard-earned assets.
The “not your keys, not your crypto” mantra shows itself yet again to be the foundation upon which sound cryptocurrency investment strategies are formed.
Still, centralized exchanges can be useful in two main ways.
First, they make crypto more accessible to investors still uneasy about diving into DeFi headfirst.
Second, they can give us a window into market sentiment by looking at an exchange’s netflow.
Netflow — also called the exchange net position change — is an indicator that shows the amount of an asset entering or leaving centralized exchanges. When inflows to exchanges rise, it’s considered bearish for that particular crypto since it means investors are no longer HODLing it and instead are looking to sell or swap it.
The opposite is true for crypto leaving the exchange, or outflows, which usually indicates investors are accumulating and HODLing that asset.
Well, according to the data by Glassnode, June saw the largest-ever Bitcoin (BTC, Tech/Adoption Grade “A-”) outflow.
Part of this, naturally, is in reaction to the withdrawal freezes. But I don’t believe that accounts for all the activity.
My colleagues Alex Benfield and Sam Blumenfeld have both written recently (here and here) that the market is looking for a bottom. Bitcoin seemingly made a low on June 18, but that hasn’t yet been confirmed, as the market leader has struggled to rise above it significantly.
These outflows indicate that other investors agree with our assessment and are preparing for upside action in the near future.
Would I go so far as to say that a rally is imminent? Not quite.
Nor would I be so bold as to suggest a local low means the bull market is back on. And, according to Weiss Crypto Portfolio editor Juan Villaverde, so long as the June 18 low remains unconfirmed, there’s still the possibility of more downside movement.
Still, with the market as oversold as it is …
And with how long the current sell-off has persisted …
It’s reassuring to see others agree with our understanding that a near-term low is likely to come soon.
After all this, you may be wondering if any centralized platforms are safe enough to hold your hard-earned assets?
And the answer to that is … potentially.
Yesterday, Alex Benfield spoke about how the current market is culling weaker projects, cleaning up the space so the top performers are ready for the next bull cycle. Well, this weakness in centralized platforms should inspire a similar culling and evolution. Centralized platforms will have to change the way they handle the asset custody and transparency if they want to survive.
And in my opinion, they should do this sooner rather than later in order to regain the lost trust … as well as to insulate themselves from the future downfalls.
Even if these changes happen, it’s still important to do your due diligence before using any platform to separate the wheat from the chaff. Take the time to look at the exchanges’ netflows, liquidity and transparency.
To that end, I recommend you take a look at our list of crypto exchanges. It shows several key indicators you can use as a starting point in your research to find an exchange worthy of your patronage.
Good luck, and until next time, stay safe and trade well.
Jurica Dujmovic
