After FTX collapse, investors flee to cold storage, Layer 2s: Koinly
The 2022 FTX collapse rocked crypto markets. Amidst the ripples of FTX's downfall , leading crypto tax calculator Koinly identified a significant shift: a surge in cold storage and ETH Layer 2 usage. In Part 1 of Koinly's State of the Crypto Market 2023 Report, we unpack this breakout trend.
Research overview
The FTX collapse in late 2022 devastated the crypto markets, leaving dozens of exchanges, crypto lenders and platforms bankrupt in the process. But how did it impact individual investors? Following the most turbulent period in recent crypto history, Koinly, a top crypto tax calculator, identified a pattern in behaviour among crypto investors - they fled exchanges, particularly those with dubious security claims in favour of cold wallets and Layer 2 and Layer 1 blockchains.
Koinly is a cryptocurrency calculator trusted by crypto investors in over 20 countries. Koinly integrates with 700+ exchanges, blockchains, and wallets to allow users to calculate their crypto tax liability. By examining hundreds of thousands of crypto investors' integrations and usage on our platform, we observed a dramatic trend. In a post-FTX world, cold storage wallets and ETH Layer 2 protocols surged in popularity at the expense of top centralized exchanges.
“Integrations” involve a user connecting a wallet, exchange or blockchain to Koinly via CSV or API. The findings presented here are based on integrations with Koinly’s platform between September and December 2022.
The FTX effect: Centralized exchanges see 60% drop in integrations
In November, centralized crypto exchanges experienced a 60% decline in usage based on integrations on Koinly, dragged down by the FTX fallout. FTX itself suffered the harshest pullback in usage on Koinly, with integrations dropping 70% month-on-month in November and by the same amount again in December - a 90% reduction in just two months.
By December, we saw a rebound in centralized exchange usage based on integrations on Koinly, with Binance and KuCoin seeing the largest gains, averaging 33% growth in the month.
Storage Wars: Cold storage sees 33% increase in integrations
In November, the month of the FTX collapse, crypto investors using Koinly’s integrations feature increasingly added cold storage and self-custody wallets to their accounts. Wallets, such as Trezor and Ledger, experienced a 33% increase month-on-month.
Meanwhile, other Layer 1 blockchains and centralized exchanges saw a decline in integrations on Koinly month-on-month, down between 5% and 60%.
ETH Layer 2s: An 80% rise
Layer 2 protocols refer to secondary protocols that operate on top of the primary blockchain layer (in this case, Ethereum). Layer 2s are designed to address scalability and cost issues.
Ethereum Layer 2s experienced a large rise in integrations on Koinly, up by 80% from September to December 2023, with Polygon, Optimism, and Arbitrum leading the pack.
Alternative Layer 1s: A 53% Rise In October
Other Layer 1 protocols (excluding BTC and ETH), such as Dogecoin, Binance Smart Chain, Cardano, and XRP, gained strong support on Koinly throughout late 2022. In fact, Koinly saw a 53% increase in integrations with these Layer 1s in October 2022 alone, suggesting their popularity among crypto investors and traders.
Meanwhile, popular Layer 1 Solana lost much of the dominance it previously enjoyed, dragged down after FTX’s collapse in November. Integration data from Koinly showed that the number of new integrations between Koinly and Solana cratered by 56% between November and December.
Top blockchain: Ethereum reigns by 105%
Ethereum remains the most popular blockchain for crypto investors on Koinly. Ethereum has remained the most resilient Layer 1 over the past six months, likely driven by the ETH Merge in late 2022 and a rebound in NFT activity.
Ethereum leads integrations on Koinly by a whopping 105%, ahead of Bitcoin, Polygon, Binance Smart Chain, Solana, Cardano and Dogecoin.
ETH and BTC represented 60% of the top blockchain integrations on Koinly from September - December 2022.
“These findings are a sign of investor maturation. Clearly, crypto investors saw risks in holding funds on centralised exchanges and instead increased their adoption of cold storage and self-custody wallets such as Trezor and Ledger. The adoption of Ethereum Layer 2 protocols also increased significantly, with Polygon, Optimism, and Arbitrum identified as the largest beneficiaries.”
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Where investors moved funds in the last six months
Which exchanges and protocols are trending
Which regions pay the most crypto taxes
The latest trends in the crypto landscape
