For nearly a week, uncertainty as to why OKEx suddenly suspended its cryptocurrency withdrawals on Oct. 16 has lingered on. The ongoing suspension has been puzzling to many, but the exchange’s representatives maintain that the move was solely because one of the company’s private key holders has been cooperating with a Chinese public security bureau. With one of OKEx’s three keyholders now in question, the exchange’s multisignature authorization process cannot be fulfilled, thus locking up its withdrawal function.
Following reports of OKEx founder Mingxing Xu being under investigation by Chinese authorities, the price of Bitcoin subsequently dropped by around 3% within the span of less than half an hour. Not only that, but OKEx’s native crypto offering — the OKB token — has also been on the slide, with the currency’s value dropping by around 25% since the incident came to light.
It is worth noting that just hours before OKEx halted its withdrawal services, on-chain transaction monitoring platform Whale Alert noted several large transfers between OKEx and certain unknown wallet addresses. In all, a transfer of 1,180 Bitcoin (BTC) was followed by another of 3,500 — both worth around $53.2 million combined. Additionally, 50 million Tron (TRX) worth $1.3 million was transferred, along with 21,000 Ether (ETH) worth $7.9 million and an incoming transaction of roughly $13.9 million in Tether (USDT).
Speaking directly on the issue, OKEx CEO Jay Hao told Cointelegraph that while he fully understands that his company’s current actions may impact customer sentiment negatively, the decision has been made with user security in mind:
“We wholeheartedly apologize for this. As a world-leading exchange, user security is not something that OKEx can or will ever compromise on. We will do everything in our power to reinstate this service promptly and will provide updates on the matter as soon as possible.”
Hao went on to highlight that except for withdrawals, all of OKEx’s other services such as deposits, spot trading, derivatives and staking remain unaffected. On Oct. 21, the Tron Foundation announced that it would facilitate an “internal transfer” option at a 1:1 ratio for all TRX holders directly affected by the withdrawal freeze.
Why so secretive?
Understandable it may be that a company is not obliged to share any sensitive investigative data with its customers immediately following a sudden service suspension, customers are starting to feel that a little more clarity would be welcome, considering OKEx’s withdrawal ban has been in place for over four days now.
Providing her thoughts on the matter, a spokeswoman for OKEx told Cointelegraph that due to certain unforeseeable circumstances, the company is “unable to disclose the nature of its ongoing investigation.” Much like Hao, she stated that despite any inconvenience caused, it’s important for the company’s customers to understand that the decision to suspend crypto withdrawals has been made to ensure a high standard of security. She added:
“We will be providing updates on the matter and restoring full service as soon as possible. There is no cause for alarm about the safety of users’ crypto assets and that there has been no cessation of any other activities on our platform. While our business is as usual apart from withdrawal, our apologies if you feel we have been silent. We will be providing daily updates on Twitter.”
Ben Zhou, CEO of Singapore-based crypto exchange ByBit, believes that while jumping to conclusions prematurely may not be healthy, it would be best for centralized exchanges to avoid a single point of failure going forward and build fail-safe contingencies to ensure optimum security and service availability at all times. He added: “Transparency is key, especially in the crypto space where there is a whole host of uncertainty and potential risks. Trust goes both ways, and is built through transparency.”
Crypto critics have their say
Even though Bitcoin has continued to forge an impressive recovery after its 3% drop in price, it still stands to reason that the general sentiment of the crypto market may have been affected negatively by OKEx’s situation along with what happened to crypto exchange platform BitMEX.
Earlier this month, several federal agencies in the United States filed charges against BitMEX’s top brass — Arthur Hayes, Samuel Reed and Ben Delo. As a result, 100x Group, the parent body governing BitMEX’s day-to-day operations, announced that it will no longer hold executive roles at the company. Potentially contributing to the market’s attitude was KuCoin on Sept. 26 announcing that it had been on the receiving end of a major hack, resulting in the firm’s Bitcoin, Ether and ERC-20 hot wallets being fleeced to the tune of more than $275 million.
Elucidating his thoughts on the subject, Thor Chan, CEO of Hong Kong-based crypto exchange Aax, told Cointelegraph that despite these recent developments, the global crypto sector seems to have staved off bearish pressure reasonably well. That being said, he did add that the noise surrounding OKEx, BitMEX and public figures such as John McAfee has certainly sent shockwaves throughout the industry.
Issues to resolve
While crypto offers customers a whole host of advantages in terms of transparency, faster transaction speed and cheaper cross-border payments, traditional market-infrastructure businesses don’t require their clients to deposit funds directly to an exchange, rather they make use of brokers. Hypothetically, even if a broker were to go bankrupt, its customers always have the option of recovering their funds directly from the broker’s bank.
Lastly, from a legal standpoint, OKEx being based out of Malta, a member-country of the European Union, but headquartered in Hong Kong raises certain jurisdiction-related issues. In fact, this very loophole has been a major cause of concern for regulators all over the globe since crypto trading became a prominent market.