Another one bites the dust! But this one's different. The Hotbit case.

[Darker45]

It's funny, worrisome, and mind-boggling how a centralized platform could have all kinds of reasons for freezing funds.

Crypto exchange Hotbit suddenly froze its users' funds as well as the deposit, withdrawal, and trading functions of the platform. The reason? One of their former employees was suspected by law enforcement authorities of being involved in a questionable project. As a result, some senior managers were asked to cooperate in the investigation. Some funds of the exchange was also ordered frozen.

But why include all of the users' funds? Why the sudden freeze of the rest of the users' trading and withdrawal functions? Moreover, orders were all canceled. And, worse, "all leveraged exchange-traded fund positions will be liquidated." Finally, there's "no timeframe for resumption" of all activities.

All that's happening with centralized platforms recently makes me cringe. It chills me to the bone! If others are still trusting centralized platforms until now, it's time to rethink seriously.

1. https://cointelegraph.com/news/crypto-exchange-hotbit-says-it-froze-customer-funds-due-to-alleged-criminal-ties-of-formal-employee

[noorman0]

-snip-
But why include all of the users' funds? Why the sudden freeze of the rest of the users' trading and withdrawal functions? Moreover, orders were all canceled. And, worse, "all leveraged exchange-traded fund positions will be liquidated." Finally, there's "no timeframe for resumption" of all activities.

That's part of the investigation. Fyi, hotbit does not adopt a KYC system for any amount of customer transactions like other centralized exchanges (unless they request it personally). Actually, it's a bit strange if Hotbit claims to be headquartered and comply with Hong Kong regulations. And now the consequences for customers with that convenience befall, when their insiders are involved in criminal activities then anyone becomes the target of investigation by legal authorities, including normal customers.

[PX-Z]

But why include all of the users' funds? Why the sudden freeze of the rest of the users' trading and withdrawal functions? Moreover, orders were all canceled. And, worse, "all leveraged exchange-traded fund positions will be liquidated." Finally, there's "no timeframe for resumption" of all activities

Users funds are considered as exchange funds, and exchange funds are considered as executive/Sr. member's money. And the halt is requested by the authorities so there's no way anyone on the exchange team can do about it, much more their users.

This is a unique case^{(i guess? never heard something like this before)} to apply the "not your keys, not your coins".
Not as worse as a hack incident but this could also give a higher chance to lock up the money of all users in a way longer time depends on the authorities investigation outcome.

[malcovi2]

I remember these guys going over to different telegram groups offering listing service and they were also blatant about it to offer proof that they are indeed working for hotbit.

it could be a possible insider-trading case.

[NotATether]

All that's happening with centralized platforms recently makes me cringe. It chills me to the bone! If others are still trusting centralized platforms until now, it's time to rethink seriously.

That's why it's important to have a backup exchange with KYC readt to use if the lifelines to one get servered (of course, not your keys, not your coins, but I'm saying this strictly for the case of buying/selling crypto to and from banks).

[NeuroticFish]

The reason? One of their former employees was suspected by law enforcement authorities of being involved in a questionable project. As a result, some senior managers were asked to cooperate in the investigation. Some funds of the exchange was also ordered frozen.

But why include all of the users' funds? Why the sudden freeze of the rest of the users' trading and withdrawal functions? Moreover, orders were all canceled. And, worse, "all leveraged exchange-traded fund positions will be liquidated." Finally, there's "no timeframe for resumption" of all activities.

I have a feeling that this is just a cover. I have a feeling they may be using the problems (if real) related to the former employee in order to do this or that, probably because their funds were not looking as good as they should. Is there any other side of the story available, or only what HotBit officials say?

However, we'll find out in time. And the users having funds there.. yeah not your keys, not your coins.

[Charles-Tim]

It's funny, worrisome, and mind-boggling how a centralized platform could have all kinds of reasons for freezing funds.

They are centralized, they have to comply with government policies and regulations, government can control the exchange, but the exchange have control over customers. This is absurd to me, Hotbit's customers are now the collateral damage. But this does not go beyond the saying that 'not you key not you coin'.

That's part of the investigation. Fyi, hotbit does not adopt a KYC system for any amount of customer transactions like other centralized exchanges (unless they request it personally).

Are you implying that some events can not occur which can make this kind of event to happen to exchanges that fully have verified customers, it may not be the same event as this news, but we should know that we sell away our privacy and full control of our funds when using centralized platforms.

[o_e_l_e_o]

it could be a possible insider-trading case.

That would be very interesting if that was the case, especially given the recent news that a Coinbase employee is being charged with insider trading. If a single employee being accused of insider trading or some other financial crime is enough to result in an exchange having a majority of their assets frozen and therefore forcing them to suspend all activities for their users, then every customer of every exchange is taking an even bigger risk than previously thought by leaving any coins on those platforms. Not only do you have all the usual risks of scams, thefts, hacks, insolvency, etc, etc., but now you also have to trust every single one of their employees not to do something risky or stupid which could end up in your funds being inaccessible.

[livingfree]

Many won't believe on their reasoning, it sounds like it is what it is but with all of these issues coming from centralized exchanges, there's nothing those users can do if their funds are still there.

This is really worrisome and you just can't remove the thought of what if this happens to the other known ones like Binance and other exchanges on the same level.

Well, the only thing we can do is to don't put all of your funds in any of them if you've got no plans of using it for trading.

[DaveF]

Not QUITE the same but.....
Here in the US most banks are insured by the FDIC Federal Deposit Insurance Corporation more or less it covers peoples deposits in banks up to a certain amount ($250000 it most cases).
If the bank becomes insolvent OR if the bank does not meet certain requirements the FDIC steps in and does 2 things.

It freezes the accounts in the bank usually for a couple of days at most to do an audit

Then it either has another bank take over the bank and keep it running. OR it cuts checks to the people who had money in the bank.

HOWEVER, there have been times when what should have been a couple of days took a couple of weeks.
No different then here, but back before BTC and "not your keys not your coins" people were discussing "cash not in hand is not your cash"

Yes this is supposedly a criminal investigation but in the end if you don't have it, it's not yours.....

-Dave

[Rikafip]

I remember these guys going over to different telegram groups offering listing service and they were also blatant about it to offer proof that they are indeed working for hotbit.

Basically all Tier 2 and below exchanges have their people spamming Telegram groups and offering listing (majority are fake of course but legit ones do exist) so this is nothing out of ordinary.

If others are still trusting centralized platforms until now, it's time to rethink seriously.

I don't think that many (those who trust/use them) will change their opinion about centralized exchanges after this thing with Hotbit. These things happened before and will keep happening in the future and people keep using using CEXes more and more.

[malcovi2]

So, a day has passed and it seems that the law enforcement involve is so secretive that no news agency covered this so-called criminal activity.

[Darker45]

That's part of the investigation.

Users funds are considered as exchange funds, and exchange funds are considered as executive/Sr. member's money. And the halt is requested by the authorities so there's no way anyone on the exchange team can do about it, much more their users.

They are centralized, they have to comply with government policies and regulations, government can control the exchange, but the exchange have control over customers.

The authorities seem to know what they are doing. There's an investigation going on, yes, but the freezing of all of the users' funds is not the order of the authorities. The order to put a halt to all of the exchange's activities including deposits and withdrawals is not coming from the authorities. The cancelation of all unfilled orders and the forcible liquidation of all leveraged positions is not done in compliance with the investigating authorities' decision. They're all decisions of Hotbit.

The authorities only ordered a freeze to some of the exchange's suspicious funds. Furthermore, they're only inviting a number of senior managers for assistance. They didn't issue a blanket order.

And what now if a former employee is under investigation? Does that justify the freezing of all users' funds? I don't think so. A former Coinbase employee was also investigated for possible criminal violations, Coinbase didn't freeze all of its users' funds. Coinbase's CEO itself was also under investigation, Coinbase didn't halt all of its services. The same goes with Binance, BitMEX, and other exchanges that are also investigated for various violations. But they didn't stop operating.

Which led me to think that NeuroticFish's suspicion is right.

I have a feeling that this is just a cover. I have a feeling they may be using the problems (if real) related to the former employee in order to do this or that, probably because their funds were not looking as good as they should.

If a single employee being accused of insider trading or some other financial crime is enough to result in an exchange having a majority of their assets frozen and therefore forcing them to suspend all activities for their users, then every customer of every exchange is taking an even bigger risk than previously thought by leaving any coins on those platforms. Not only do you have all the usual risks of scams, thefts, hacks, insolvency, etc, etc., but now you also have to trust every single one of their employees not to do something risky or stupid which could end up in your funds being inaccessible.

Exactly! This is such a terrifying precedent if that's the case.

[NeuroticFish]

The order to put a halt to all of the exchange's activities including deposits and withdrawals is not coming from the authorities. The cancelation of all unfilled orders and the forcible liquidation of all leveraged positions is not done in compliance with the investigating authorities' decision. They're all decisions of Hotbit.

Actually it can be also ordered by authorities, if they're investigating something else/something more, like, for example, inside trading, hack, missing funds.
However, as I said, I feel like Hotbit is either lying, either hiding some of the truth.

[Potato Chips]

it's a bit strange if Hotbit claims to be headquartered and comply with Hong Kong regulations.

Well, the only hotbit out there in hongkong is marked as "dissolved" (unless they go by a different name).

Cancellation Date: September 04,2020
Active Status: Dissolved

Date of Dissolution/已告解散日期：2020-09-04

It's interesting because they still claim to be registered according from their about us... so I couldn't help but to look into Estonia's as well only to find out they were registered only a year ago despite hotbit claiming longer than that.

Registered 06.04.2021

All this lying ain't a good sign. Makes me even more on the fence about the whole thing since we don't have any outside info at the moment.

[crwth]

It's unfortunate for the users of that exchange. They didn't do anything, and they get to be frozen out of their funds. But if the business isn't compliant with anything, then it's a time bomb with what they will do with their operations. They have probably looking for a fall guy or something with what they have done, and it is fishy just to do that and make people feel that it is still there. It's probably gone now.

[o_e_l_e_o]

-snip-

Another possibility would be that since they are most likely operating a fractional reserve system like every other lending platform with a very small amount of funds actually in reserve, that although the authorities have only frozen some of their funds that this represents a large proportion of the funds they actually have access to in their own wallets and therefore pushed them in to liquidity issues.

They are stating on Twitter that all funds are safe (how many times have we heard that?) and they expect the freeze to "not be too long" (whatever that means).

Hopefully no one actually loses their money here, but damn, how are people still trusting these platforms given what has happened over the last few weeks/months?

[malcovi2]

-snip-

Another possibility would be that since they are most likely operating a fractional reserve system like every other lending platform with a very small amount of funds actually in reserve, that although the authorities have only frozen some of their funds that this represents a large proportion of the funds they actually have access to in their own wallets and therefore pushed them in to liquidity issues.

They are stating on Twitter that all funds are safe (how many times have we heard that?) and they expect the freeze to "not be too long" (whatever that means).

Hopefully no one actually loses their money here, but damn, how are people still trusting these platforms given what has happened over the last few weeks/months?

Yeah, I thought they would die last year because this wasn't their first time freezing everything in their website. I guess this is why scammers are flooding in into crypto because it so easy to scam when there are many gullible people.

[examplens]

They are stating on Twitter that all funds are safe (how many times have we heard that?) and they expect the freeze to "not be too long" (whatever that means).

as far as I remember, all their previous hacks where they temporarily closed the exchange lasted between two and four weeks. I believe that it will be like that now, for at least two weeks.

Hopefully no one actually loses their money here, but damn, how are people still trusting these platforms given what has happened over the last few weeks/months?

Some altcoins (I'm not going to say shitcoins) are the easiest to sell there. I, for example, did not manage to convert to TRX (TRX instead of bitcoin because of the high fee), now I have some funds locked up there.

[stompix]

The authorities seem to know what they are doing. There's an investigation going on, yes, but the freezing of all of the users' funds is not the order of the authorities. The order to put a halt to all of the exchange's activities including deposits and withdrawals is not coming from the authorities. The cancelation of all unfilled orders and the forcible liquidation of all leveraged positions is not done in compliance with the investigating authorities' decision. They're all decisions of Hotbit.

I don't know how things work in Hong Kong and what the actual case is there but here in Europe an account that holds money that is part of investigation will be frozen no matter the value of the claims, so without an appeal of the exchange to a superior court to unfreeze some of the funds, proving that this is outside the investigation all the amount will be frozen even if the exchange has $10 million and they are accused of $100 in money laundering. If the investigation doesn't have complete information on how much the illegal amount goes up to and where and how are those administrated all! all funds are going to be frozen, including accounts that are used for paying for stuff and including wages that need to be paid to employees.

Another possibility would be that since they are most likely operating a fractional reserve system like every other lending platform with a very small amount of funds actually in reserve, that although the authorities have only frozen some of their funds that this represents a large proportion of the funds they actually have access to in their own wallets and therefore pushed them in to liquidity issues.

If they have operated like this and the actual amount they have at hand is lower than the claims they are gone and nobody will see a penny back.
How big was it ? Coingecko is not showing it in the search and  I don't trust those numbers they claim, 7 million users my ass!

Also, they actually used an anime gif for their announcement?
https://twitter.com/Hotbit_news/status/1557347934983061504
Realllyyyy?