Published: October 22nd, 2020
OKEx, one of the leading cryptocurrency exchanges in the world announced on Friday, October 16, that it has suspended cryptocurrency withdrawals. A statement posted on the exchange’s website said that it had lost touch with one of its private key holders because he is a person of interest in a public security bureau investigation.
OKEx, a leading cryptocurrency exchange has announced that it has suspended cryptocurrency withdrawals. A notice posted on Friday, October 16, on the Valletta, Malta-based exchange’s website said it was out of communication with one of its private key holders.
The statement added that the said key holder is a person of interest in a public security bureau investigation. However, the notice did not mention which country’s security bureau it cited in the statement.
Because of the key holder’s absence, the exchange could not complete withdrawal authorization. As a result of the news, most top currencies sold off. The price of Bitcoin on the exchange dipped 3% in just 30 minutes of the news to stand at $11,182. However, recon conducted later in the day indicated a rebound.
Meanwhile, Caixin, a Chinese news source reported that Mingxing "Star" Xu, the exchange’s founder had been arrested by the police at least 10 days ago and has not been sighted since.
According to Whale Alert, an on-chain transaction monitoring tool, significant amounts of Tron, Bitcoin, and Ether, were withdrawn from OKEx-affiliated addresses just hours before the exchange suspended crypto withdrawals.
The outgoing transfers included 1,180 BTC worth (Approx. $13.6 million), some 50 million TRX, equivalent to $1.3 million, and 21,000 ETH worth about $7.96 million. At the same time, the exchange received about $13.9 million in USDT.
According to Whale Alert, the transfers happened around the same time that coins from the Bitfinex hack were transferred. However, considering the millions of transactions that happen in the various blockchains at any one time, the similarity of these transactions might be purely coincidental.
The platform was quick to try and calm any emerging tensions. In another statement posted on its website, OKEx said that the exchange’s other functions remain stable and normal and that the security of the customers’ assets held in the exchange will not be affected.
The statement added that the exchange will resume cryptocurrencies/digital assets transactions as soon as OKEx establishes communication with the private key holder and he can authorize transactions.
The platform’s CEO, Jay Hao, disclosed via Twitter that the key holder was cooperating with the authorities on a personal issue and that the context of the investigations is not related in any way to the exchange’s business. He added that non-crypto withdrawals were going on unabated since all such transactions and digital assets operations were not affected by the absence of the key holder.
In another follow-up statement, OKEx reiterated that they cannot disclose the nature of the ongoing investigation.
Colin Wu, a reporter based in Beijing, wrote on his WeChat public account @wublockchain that the OKEx investigations that led to the arrest of the private key holder are related to anti-money laundering allegations.
The OKEx news comes hard on the heels of the U.S. prosecutors’ indictments of BitMEX’s co-founders and one of their senior employees just two weeks ago. When the prosecutors acted, concerns emerged that withdrawals on BitMEX, one of the world’s largest derivatives marketplace in the crypto industry may come to a stop because of the arrest of a signatory.
The concerns mentioned above melted away fast and BitMEX customers continued to access their funds unrestricted. However, the possibility of such restrictions combined with the realities of the OKEx’s blanket withdrawal limitations points to the unique crypto markets infrastructure and its weaknesses.
The two incidences will most certainly shift the market’s attention to the security and protocols of withdrawal in large exchanges. According to the director of research at CoinDesk, Noelle Acheson, traditional market-infrastructure businesses are not without regulatory risk. However, in such markets, market users do not put their money directly into the exchanges. Instead, they do so via brokers.
Acheson said that in such an instance, even if a broker goes bankrupt, the broker’s bank can still return the user’s money since funds are segregated. She noted that since the crypto markets do not have brokers, all funds are held in the exchange platform. Therefore, no entity that can take over on behalf of the authorities and ensure that clients’ funds are returned.
In a tweet by the CEO on Tuesday, October 20, the exchange has not completed any on-chain outflow since it suspended withdrawals temporarily. The tweet added that the customers’ funds are safe and that the exchange will endeavor to resume withdrawals as soon as possible.
However, communication from the CEO was not enough to calm down tension among the exchange’s customers. A user going by the username Jojo, took to Twitter, lamenting the weirdness of one of the largest exchange’s inability to allow him to withdraw money.
Many users protested the exchange’s blatant lack of transparency compared to other platforms. Another user, Douggie Clarke, asked the wisdom behind OKEx’s silence. With billions locked up in the exchange and the reputation of the platform at stake, what is the explanation for not providing more transparency? he asked.
Other users even implied that they would leave the exchange for good, presumably, after regaining access to their accounts and withdrawing all the funds.
OKEx, the second-largest cryptocurrency in the world by volume of derivatives sold, becomes the second entity in the industry over a similar number of weeks, to experience operational pitfalls caused by relations with law enforcement agencies. The exchange said in a statement that it had suspended cryptocurrency withdrawals because it had lost touch with one private key holder. The incident now shifts the focus of the industry to the safety and fluidity of withdrawals in large exchanges.