Published: May 24th, 2023
Hotbit is the latest crypto exchange to come under pressure in the post-FTX digital asset downturn. The company has announced the exchange will close, listing a variety of reasons while also suggesting that centralised exchange models may be doomed in the long-term.
In press release, Hotbit said exchange operations would end the morning of 22nd May, and directed traders to lose positions and withdraw any funds by 21st June.
‘We still believe crypto has a bright future and we will continue to fight for innovation,’ the company added.
The exchange, which claims to have had over five million users, blamed the decision on the negative crypto trading environment, a situation made worse when operations were suspended for several weeks in August 2022 after a former employee was placed under investigation.
Hotbit also said the future of centralized exchanges was unclear. Given the meltdown of FTX and the closure or distress experienced by other major crypto institutions in recent months, the industry has to choose between accepting more regulation or shift to decentralised models.
‘It’s our belief that the CEX (centralised exchange) model is becoming increasingly hard to manage, with highly complex and interconnected units that make compliance and decentralisation very difficult to achieve in tandem. The current direction of the market will mitigate against success.’
Hotbit’s statement also mentioned issues including the high risk profile on some assets and a series of cyber-attacks that have left its model, offering a wide range of investments, unworkable.
Crypto exchanges have found themselves operating in an increasingly pressurized environment in the wake of the FTX meltdown earlier this year.
Number one exchange Binance had some explaining to do earlier in May 2023 when traders began to question whether or not it was liquidating huge amounts of Bitcoin.
Data from Coinglass showed that in one two-day period at the start of May May, Binance moved more than USD five billion in Bitcoin, or roughly 30 per cent its net BTC reserve balance.
Close to 183,000 BTC appeared to have left the exchange in a 48-hour period, sparking concerns by some observers about the reasons behind the ‘atypical’ movements.
The apparent Bitcoin outflows happened just after Binance placed a temporary pause BTC withdrawals. In a Twitter exchange, the company said that no one should be concerned about the transfers.
Tweets from Binance’s official Twitter account said that the company was aware ‘some data are showing a large volume of outflows,’ However, the outflows actually represent ‘movements’ between the exchange’s hot and cold wallets. The shift was necessitated by BTC address adjustments, Binance added.
In a press announcement shortly after the Twitter thread, Binance said the BTC movements were not cause for worry, referencing comment from analytics firm CryptoQuant which said that Binance’s BTC moves were required thanks to newly-created change addresses owned by the exchange.
As the world’s number one marketplace for crypto assets, traders tend to keep an eye peeled for major transactions on the exchange. They can be read as signals about trader confidence in the company, or the reverse.
In December 2022, Binance saw billions-worth of crypto leave the exchange in one 24-hour period, prompting fears as to whether its reserves were secure. Founder and CEO Changpeng ‘CZ’ Zhao said at the time that the withdrawals were just ‘routine business’.
Six months earlier, a Reuters investigation found that Binance had been used to launder more than USD 2.3 billion in illicit funds between 2017 and 2021.
Journalists and analysts at the news agency based their findings on court records and interviews with financial regulators. They also partnered with two blockchain analytics firms, Crystal Blockchain and Chainalysis, to track illicit funds moving through the exchange.
The report quotes a Binance spokesperson, who said the exchange is in the process of building ‘the most rigorous cyber forensics team in the industry,’ the spokesperson said, which will ‘strengthen our ability to uncover illegal activity on the exchange.’
In a prepared statement published on the company website, Binance said it had received ‘a flood of support’ from its ‘law enforcement partners’ across the globe since Reuters published its findings on Monday.
The company describes the article as a ‘woefully misinformed’ opinion piece that uses outdated information from 2019 and ‘relies heavily on anonymous sources to establish a false narrative.’
Reuters claims to have uncovered the links between a number of hacks and breaches involving several crypto trading platforms, with Binance playing a part in each one. These include the hack of Slovakian crypto exchange Eterbase, criminal activities on a darknet marketplace called Hydra, and the Lazarus hacking collective which operates out of North Korea.
Reuters estimated that the Hydra darknet marketplace had used Binance to facilitate payments for illegal drugs sales worth close to USD 780 million, an accusation the company called ‘inaccurate and overblown.’
In April 2022, the US Justice Department announced it had been working with German police to seize Hydra's European servers. The Justice Department said Hydra was the source of 80 per cent of all darknet crypto transactions, pulling in more than USD 5 billion since 2016.
Hydra user posts seen by Reuters seemed to confirm that Binance was the site’s preferred payments platform due to its anonymity when creating an account.
In September 2020, Reuters says hackers from North Korea’s Lazarus group created a number of Binance user accounts and used them to launder USD 5.3 million in funds stolen from Slovakian cryptocurrency exchange Eterbase.
Because it asks only for minimal information when a new account is being created, Binance ‘doesn't have a clue about who is actually moving money through their exchange,’ Eterbase co-founder Robert Auxt told the news agency.
After it was hacked, Eterbase tried to work with Binance to get the stolen funds back, with Binance CEO Changpeng Zhao tweeting that the exchange would ‘do what it could to help’.