After authorities froze some of the cryptocurrency exchange Hotbit’s funds due to a possible violation of criminal law, the exchange decided to suspend trading, as well as deposits and withdrawals. According to a statement released by the company, the decision to temporarily halt service provision was made in response to reports that a former manager, who Hotbit said resigned in April, was engaged in activities that went against Hotbit’s organizational values. Late last month, many senior managers of the company were summoned and are participating in the company’s inquiry.
Although Hotbit did not specify which jurisdictional agency is examining its managers or the entire sum of the funds that were frozen, it is highly improbable that a US-based organization is conducting the investigation. According to the company’s about page, it is licensed in Estonia and Hong Kong, but its headquarters are in Shanghai and Taipei. CB Insights claims Hong Kong as the location of Hotbit’s headquarters, although Crunchbase lists Beijing. By press time, Hotbit had not responded to reporters’ requests for comment on its trading halt and identification of its headquarters. It anticipates resuming services once assets are unfrozen but cannot predict when this will occur.
Alleged Criminal Misconduct
Trading on the cryptocurrency exchange, which formerly let users buy and sell major cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH), has been formally halted, as have deposits and withdrawals. The company cautions that there is presently no resuming schedule in place. Hotbit has stated that an ex-employee who participated in an external initiative last year “unbeknownst” to the company is accused of breaking the law; nevertheless, it is unclear how the suspected illegal conduct led to a law enforcement restriction on user funds.
While Hotbit’s senior management is supporting law enforcement with their inquiry, neither the nature of the external project nor the particular laws that were broken have been disclosed. Evidently, the authorities’ freezing of some of Hotbit’s funds has prohibited the firm from “operating normally,” as stated by the company, which is no longer providing services. The majority of the cryptocurrency exchange’s personnel are from China, Taiwan, and the United States, as previously noted.
Cascading Effects On The Crypto Businesses
The cryptocurrency market had a complete collapse in May after the algorithmic stablecoin UST dropped its peg to the US dollar. As a result of this, the market capitalization of the cryptocurrency market dropped below $1 trillion for the first time since January 2021. When Terra (LUNA) collapsed, wiping out over $40 billion in investor investment, other cryptocurrencies followed suit. Several prominent crypto firms have ceased trading, deposits, and withdrawals in reaction to a liquidity crisis that has caused the prices of some major coins to collapse.
In the instance of Hotbit, all outstanding open orders were canceled to avert losses, and on August 10, all leveraged exchange-traded fund (ETF) holdings were liquidated as per their values. Problematic cryptocurrency exchange Voyager Digital has just proposed a “Plan of Reorganisation” to allow customers to restore access to their accounts and has since registered for Chapter 11 bankruptcy. The Toronto-based company claims that it possesses more than 100,000 creditors, assets around $1 billion and $10 billion, and liabilities of the same magnitude.
In a similar manner, one of the most prominent cryptocurrency lending platforms around the world, Celsius, halted all trades and withdrawals across its network in the aftermath of Terra’s failure and then filed for protection under Chapter 11 of the United States Bankruptcy Code in the Southern District of New York in the middle of July. Soon after freezing withdrawals on its system, Singapore-based Zipmex recently filed bankruptcy protection, avoiding legal action from creditors but has now partially reinstated withdrawals.
