Developing story: OKEx suspends withdrawals…but is there more to this?

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What happened?

On 16th October 2020 OKEx suddenly announced that one of their private key holders (later confirmed to be Star Xu, OK Group’s CEO and Co-founder) is cooperating with a “public security bureau” and is unable to contact them. Therefore the Exchange cannot complete authorisations for transactions and thus decided to suspend all withdrawals of digital assets/cryptocurrencies from 16th October 2020 at 11:00 (HKT).

The Exchange did this under clause 8.1 of their Terms of Service which provides that, “8.1 Service Change and Interruption: We may change the Service and/or may also interrupt, suspend or terminate the service at anytime with or without prior notice.”

In particular, their Terms of Service defines their “Services” as the services that OKEx offers through OKEx.com or its app. According to the Terms of Service, you must agree to be bound by it to use the Services, including of course their rights under clause 8.1 to suspend it at any time.

This abrupt suspension has shocked the cryptocurrency community and caused prices of both Bitcoin and Ethereum to plunge. In particular prices for Bitcoin dipped from over USD$11,500 to USD$11,235 within a half-hour period. As of the time of writing, prices have still not yet fully recovered.

Meanwhile, there are rumours circulating that there is more than what meets the eye and that this suspension was a cumulation of events that were already in motion a few days ago. Let’s take a look at some events today (16th October 2020) which may (or may not) be relevant to this:

  • 1:00a.m.: Twitter user @whale_alert tweets: 5,000 #BTC (57,033,847 USD) transferred from unknown wallet to #OKEx
  • 4:00a.m.: Twitter user @whale_alert tweets: 1,180 BTC (13,588,646 USD) transferred from OKEx to unknown wallet
  • 9:00a.m.: Twitter user @whale_alert tweets: 50,000,000 TRX (1,317,074 USD) transferred from OKEx to unknown wallet.
    11:55a.m.: Chinese crypto media platform 非小號 (Feixiaohao) and UAICOIN publishes notices from OKEx that withdrawals will be suspended from 3:00p.m. onwards. This was also reported in a tweet from Co-founder of Chinese crypto media outlet @redtheminer who also notes the rumours circulating in the Chinese crypto community that over 800 accounts from a “certain large crypto exchange” are involved in cross border money laundering.
  • 12:00p.m.: OKEx announcement that it would suspend withdrawals from 11:00a.m. onwards.
  • 1:00p.m.: OKEx finally tweets their announcement on the withdrawal suspension.
  • 2:00p.m.: OKEx CEO Jay Hao tweets, reassures that all other operations are unaffected and that, “The investigation concerns a certain private key holder’s personal issue only. Further announcements will be made.”
  • 2:51p.m.: Someone asks OKEx support “Why is Star Xu’s Weibo page emptied?” and they replied, “The person you are referring to has no relation to our platform”.
  • 3:51p.m.: Twitter user @whale_alert tweets: 998 BTC (11,333,911 USD) transferred from Huobi to OKEx.

*All times are stated in HKT unless otherwise specified.

A few observations

There are reports from Chinese media that Xu was in fact already arrested a week ago, whilst 2 executives that were also arrested have since been relased on bail. His arrest is causing a stir because he holds the private keys to OKEx’s funds, and according to Glassnode’s data, OKEx holds around 200,000 BTC i.e. USD$2.3 billion worth of Bitcoin.

There are reports that Xu was arrested in relation to matters unrelated to OKEx. In particular, it was in relation to funds he had borrowed from a Shanxi-based underground bank for the purposes of the backdoor listing of OKC Holdings on the Hong Kong Stock Exchange in 2019.

We’ve already mentioned this in our previous newsletter about the KuCoin hack. Please take your cryptocurrencies off exchanges and store them offline in a hardware wallet. If you don’t have one yet, please consider getting one. Check out our Ledger Nano X review or buy it here.

The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal or tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action. Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur.

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