"LongHash Column: Bitcoin Holdings in Coinbase's Cold Wallet Nearing One Million"

It is well known that finding reliable data about cryptocurrency exchanges is a challenging task. Last year, Bitwise released a widely circulated report that raised suspicions about the trading volume data provided by exchanges themselves. In response to these doubts, many exchange ranking websites and analytics companies have introduced indicators to assess cryptocurrency exchanges and trading volume.

However, these indicators also have their limitations. They may not include major exchanges, some are based on easily manipulated indicators such as web traffic or app store rankings, and generally lack transparency in their calculation methods.

To find better and more transparent indicators to evaluate cryptocurrency exchanges, we decided to use data from chain.info to observe exchanges' cold wallet storage. Based on a series of assumptions about how transfers occur between deposit addresses, hot wallet addresses, and cold wallet addresses, we analyzed cold wallet addresses associated with major exchanges and their held assets.

While this method is not perfect—it still relies on some assumptions and may not accurately identify all cold wallet addresses—it does offer significant advantages compared to other exchange evaluation indicators. Since the data is derived from analysis of on-chain asset transfers, it is difficult to falsify.

So, according to our analysis, which exchanges have the most bitcoins in their cold wallets?

Firstly: Coinbase holds the most bitcoins of all cryptocurrency exchanges to date, and its holdings have significantly increased over the past year. Furthermore, this growth is relatively stable and appears unaffected by price fluctuations. The amount of bitcoins in Coinbase's cold wallet is quickly approaching the one million mark.

Coinbase's clear dominance and stable growth in holdings may be due to its attraction of a significant portion of long-term/institutional investors who are less concerned with short-term price fluctuations.

Situation of Other Major Exchanges

In the chart above, we can see some notable differences. The amount of bitcoins in Binance's cold wallet consistently ranks second throughout the year, and its holdings do not show a clear trend during fluctuations. Bitfinex ranked third at the beginning of 2019, but its bitcoin reserves decreased in the first quarter and only recovered by the end of 2019.

Bittrex, Bitstamp, and Kraken ranked fourth, sixth, and seventh respectively at the beginning of 2019, and the bitcoins in their cold wallets showed a stable trend.

Huobi's situation may be the most noteworthy. In 2019, the amount of bitcoins in Huobi's cold wallet jumped from fifth place to second. It is said that most of the PlusToken transactions were processed through Huobi, which may explain the significant rise in Huobi's ranking.

In our analysis, the last four exchanges are Coincheck, Bitflyer, Gate.io, and OKex, with three of them showing an increase in holdings. Coincheck's holdings remained stable.

In summary, in terms of the amount of bitcoins held in cold wallets, Coinbase remains the top cryptocurrency exchange, and its leading advantage has steadily grown over the past year. In 2019, exchanges including Binance, Bitfinex, Bittrex, Bitstamp, Kraken, and Coincheck did not experience significant changes in holdings. However, Huobi, Bitflyer, OKEx, and Gate.io all saw substantial growth.

But there are some points to note in our interpretation of on-chain cold wallet data. Some of the vertical turning points in the chart may be due to the algorithm discovering new cold wallet addresses or delays in data synchronization, and may not necessarily reflect actual new balances deposited into the exchange.

Exchange Tokens

Several exchanges we studied have issued their own exchange tokens, which raises the question: is there a correlation between the performance of these tokens in 2019 and the amount of bitcoins in their cold wallets?

There are two reasons to support this hypothesis. Firstly, more user deposits mean more users trading within the same exchange, which brings more revenue to the exchange. Secondly, a high amount of holdings in cold wallets signifies a high level of user security in the face of events such as hacking, fraud, or other potential losses, which means users are more inclined to hold the exchange's token.

Binance, Huobi, Bitfinex, Gate.io, and OKex have all issued their own tokens. To eliminate the influence of Bitcoin's price fluctuations, we chose Bitcoin as the unit of account to measure the performance of these exchange tokens.

We found that all exchange tokens performed exceptionally well in the first quarter of 2019, with returns exceeding 100%, but these substantial gains disappeared in the later part of 2019. By the end of the year, the best-performing exchange tokens came from OKEx (2x) and Huobi (1.3x). Binance Coin (BNB) had significant gains in the middle of the year but failed to maintain them by the end of the year. Tokens from Gate.io and Bitfinex both declined throughout 2019.

Based on the data from 2019, there may be a certain correlation between the amount of bitcoins in exchange cold wallets and the price of exchange tokens. Both Huobi and OKEx saw growth in these two indicators, while Bitfinex and Binance remained stable. The disparity lies with Gate.io, where the amount of bitcoins in its cold wallet increased, but the token price declined. This could be because in our sample study, Gate.io had the lowest amount of bitcoins in cold wallets, so the change in holdings was not significant when calculated in absolute value.

While cold wallet storage volume is not a perfect indicator for evaluating cryptocurrency exchanges, it does provide a valuable starting point for observing exchange user numbers, trading volume, and revenue. Relatively speaking, the data from cold wallet storage is also difficult to falsify or manipulate.

This article is from our partner LONGHASH

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