On October 17, Binance announced that it had completed its Q3 BNB token burn. According to the announcement, Binance burned 2,061,888 BNB tokens worth $36.7 million. Binance believes that this indicates a significant third quarter growth. Other exchanges, however, are not convinced. The CEO of OKEx, Jay Hao, has accused Binance of using BNB burns as a way to trick traders into buying its native coin. On his Weibo account, Jay stated this as the reason why the third quarter burn value was so high yet the total trading volume of Q3 was significantly lower than Q2. Jay also accused the CEO of Huobi, Xiaoqi Weng (nickname: Qiye), of falsifying trade volumes.
Now, the bosses of three of the largest exchanges are in a heated feud while most of their coin holders remain clueless as to what is going on. It is generally understood that exchanges often inaccurately report their trading volumes. In March, Bitwise Asset Management, an American company that provides cryptocurrency investment services, conducted a detailed analysis of 81 of the world’s top exchanges which they submitted to the Securities Exchange Commission (SEC). The study revealed that among the 81 exchanges, as much as 95% of the total Bitcoin trading volume had been falsified. That being the case, how can traders be sure that the information they receive is accurate?
PAData teamed up with Chain.info, a cryptocurrency data service platform that specializes in blockchain trading, in a study of the global Bitcoin market. By observing and tracking Bitcoin balances and coin transfers among the digital wallets of top exchanges, they have provided a clear picture of the competitive landscape and insight into current trends of the Bitcoin market.
Crypto Exchanges’ Three Main Types of Digital Wallets
Most are Normal Wallets, but Cold Wallets Hold the Largest Balance
The flow of funds through exchanges is carried out using three different types of digital wallets: normal, hot, and cold. Coin traders only transact directly with normal wallets of an exchange. Users transfer Bitcoins into an exchange by depositing tokens into a normal wallet. Once deposited into a normal wallet, coins may either remain there to be withdrawn by other users or they will be transferred into a hot wallet of the exchange. Hot wallets are the online wallets of an exchange and are used primarily as a medium for transferring funds from cold to normal wallets. Cold wallets are the offline wallets of an exchange. They are essentially savings accounts and can only transfer or receive funds from hot wallets.
As of September 30, the ten exchanges with the largest Bitcoin balance had a total of 4.1177 million digital wallets of which 4.1175 million were normal wallets, accounting for 99.99% of the total number of wallets. Bittrex had the largest number of normal wallets at 1.246 million, while Binance had the fewest with roughly 83,000. The remaining eight exchanges all had over 100,000.
An exchange typically does not have near as many hot and cold wallets as it does normal wallets. Of the ten exchanges with the largest Bitcoin balance, Huobi had the largest number of hot wallets with 13. The rest all had less than 10. Looking beyond these top ten exchanges, Chain.info found that in general exchanges have somewhere between 10 and 30 hot wallets. Of the ten exchanges, it was Bitfinex that had the most cold wallets with 58. Binance had the second most with 38 while the rest all had 10 give or take.
In terms of balance, most exchanges keep the majority of their funds in cold wallets primarily for security reasons. The aggregate cold wallet balance of the ten exchanges surveyed was approximately 860,000 Bitcoins, or 81.44% of the total balance. Of these, Binance’s cold wallets contained the largest amount with about 237,000. Huobi had the second largest amount with roughly 151,000 followed by Bitfinex with approximately 135,000. Worth noting is that Huobi’s normal wallets contained roughly 144,000 Bitcoin tokens, far more than any other exchange.
The characteristics of these three types of wallets are determined by their unique functions, and the ways that different exchanges utilize these functions says a lot about their varying operating styles. For example, Binance and Bitfinex place a large portion of their funds in a number of cold wallets. Huobi on the other hand maintains a large normal balance and is therefore capable of handling a large volume of trades with quick transaction times.
The “Three Tiers” of the Bitcoin Market
Huobi Tops Net Inflow While OKEx Sits at the Bottom
The combined Bitcoin balance of an exchange’s normal, hot, and cold wallets reflect its position in the Bitcoin market. In theory, the higher the balance, the larger and more frequent the transactions.
Looking at third quarter figures ending September 30, Huobi had the largest Bitcoin balance with a total of 296,000 coins. Binance had the second largest amount with 241,000. The Bitcoin balance of Huobi and Binance far surpassed that of any other exchange. They are the “First Tier” exchanges of the Bitcoin market.
The “Second Tier” of the Bitcoin market is comprised of Bitfinex, Bittrex, and Bitstamp. As of September 30, they had 137,000, 122,000, and 109,000 coins respectively. Their total Bitcoin balance remained quite stable throughout the third quarter. Only in early July had the balance of Bitfinex fallen below that of Bittrex.
Kraken, OKEx, Coincheck, Bitflyer, Bithunmb, BTC.top, Biss, and Poloniex make up the “Third Tier” of the Bitcoin market. Unlike the top two tiers, the rankings of these exchanges frequently fluctuated throughout the third quarter. In July, OKEx’s 6th place ranking was overtaken by Coincheck. In late September, Poloniex replaced Upbit as number 10. Competition among exchanges not ranked in the top 10 was even more fierce as Bithumb, BTC.top, and Biss were all fighting for a spot.
During the third quarter, the overall performance of Bitcoin fell. The July 1 and September 30 closing values of Bitcoin fell from $10,640 to $8,331, a decrease of 21.7%. Looking at the third quarter net inflow of these exchanges, it can be seen that only top tier exchanges have been able to maintain and solidify market advantage with the recent decline of Bitcoin.
Huobi, Binance, and Bifinex had the largest Bitcoin net inflow during the third quarter with approximately 52,000, 23,000, and 9,000 coins respectively. Huobi in particular, with an over 50,000 coin net inflow, further secured its position as a leader in the Bitcoin market.
Bitflyer and Coincheck also recorded a net inflow during the third quarter, Bitflyer with nearly 1,500 coins and Coincheck with just over 2,100 coins. OKEx, Bittrex, and Bitstamp, however, recorded a Bitcoin net outflow of roughly 18,000, 6,000, and 3,000 coins respectively.
Binance Lets 100,000 Bitcoins and a Chunk of the Market Slip Away
Dynamic Bitcoin Transfers observed between Huobi and OKEx
The cryptocurrency market is still relatively unknown. A unique characteristic of the market is that competition among exchanges is mainly over existing traders rather than new traders. Therefore, analyzing the movement of coins between exchanges is an effective way to understand the competitive landscape.
According to third quarter statistics, over 104,000 Bitcoins were withdrawn from Binance and transferred to other exchanges whereas none were transferred in by users of other leading exchanges. In other words, in the third quarter, Binance let a portion of the Bitcoin market slip away.
A significant amount of Bitcoins also flowed out of Huobi and OKEx. 71,000 Bitcoins from Huobi and 53,000 from OKEx were withdrawn and subsequently deposited into other exchanges during the third quarter. In the same period however, 61,000 flowed into Huobi and 119,000 flowed into OKEx. Worth noting is that Bitstamp has performed quite well having received 49,000 Bitcoins from other exchanges and only sending 10,000 to other exchanges.
As seen in the picture below, PAData used the data to compile a web showing the direction of which Bitcoins travelled during the third quarter. The design of the web is the result of user preferences. The web uses arrows to indicate transfer direction and arrow thickness to indicate total transfer amount.
The web shows that a large amount of Bitcoins moved Binance, Bitstamp, OKEx and Huobi, particularly among OKEx and Huobi. In 342 transfers, OKEx users deposited approximately 35,000 Bitcoins to Huobi. Huobi users transferred roughly 58,000 Bitcoins into OKEx over 476 transfers.
During the third quarter, Binance users primarily transferred their Bitcoins into three exchanges: OKEx, Huobi, and Bitstamp. Users made 382 transfers into OKEx totaling 51,000 Bitcoins. They made 202 transfers into Huobi amounting to 22,000 Bitcoins. And they made a total of 176 transfers equaling 21,000 Bitcoins into Bitstamp.
The Bitcoin volume moved among Bitstamp, OKEx, and Huobi during the third quarter was not as significant. Bitstamp users deposited a total of 7,000 Bitcoins into OKEx over 56 transactions. They made only 14 transfers into Huobi totaling 1000 Bitcoins. OKEx users deposited a total of 14,000 Bitcoins into Bitstamp over 80 transfers. Huobi users deposited 6000 Bitcoins into Bitstamp over 72 individual transfers.
The web is designed so that the closer the exchange is to the center, the more transfer activity it had with other exchanges. Conversely, the further away the exchange, the less active. ZB, BTC.top, and Coincheck for example were less active. ZB only received a total of 634 Bitcoins over 8 transfers from Binance, Huobi, and OKEx. BTC.top received only 2 transfers totaling 135 Bitcoins and sent out a total of 726 over 8 transfers to OKEx and Huobi. Coincheck only received three transfers totaling 214 Bitcoins from Huobi and Poloniex.
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