Boasts of resuming withdrawals should ring alarm bells

OKEx puts out a hyperbole-infused statement on why it blocked withdrawals. We dissect it in detail. For the customer’s benefit? My foot.

bitcoin

The ability for retail customers of electronic trading companies to withdraw their funds has always been a critical and vital aspect by which business integrity is judged as well as one of the longest standing criteria set out by financial markets regulators.

The vast majority of FX and CFD brokers worldwide are duty bound, and equally committed to ensuring that the flow of capital between their custodian banks and their clients is absolutely unhindered.

Despite the challenges relating to the availability of good quality payment services providers, most FX brokerages are absolutely diligent in ensuring that client funds are handled in the most ethical and legal way, and have been for some years now.

As is often the case, the fly in the ointment is once again the digital asset, or so called ‘crypto’ exchanges, which are false exchanges using airware – infrastructure architecture industry slang for non-existent technology – to peddle non-existent currencies under no regulatory remit which often ends in the complete loss of initial investment for many customers.

The trail of disaster left behind by crypto exchanges spans ten years, and goes from the US government seizure of illicit market places (Silk Road), to the running away with client money by the owner of MtGox whilst he called it an external hack which in itself would be bad enough, various disappearances of venues, frozen withdrawals and even bona fide CFD brokerages offering Bitcoin CFDs and catching a cold to the tune of tens of millions of dollars in just one week in 2018.

Yet here we are, ten years after the loud mouthed mavericks with bow ties stood up in cult-like crypto seminars globally telling tall stories of how they are going to topple the bank with a ‘people’s currency’, the euphoria surrounding which led to disaster after disaster with absolutely no recourse for customers.

Bitcoin is a ‘people’s currency’ just like the governments of Venezuela, Congo, North Korea and China are “people’s republics”.

This week, the tabloids have been awash with sensationalist news stories heralding whopping values for Bitcoin, a non-existent currency backed by absolutely nobody with a founder that uses an alias. It is the Banksy of the trading world.

Banksy is a British vandal who passes his work off as ‘art’ and who covers his face whilst railing up against world governments. He sells his ‘art’ for a high price, yet nobody knows who he is and he is wanted by the Police in several countries. For those wanting a tangible comparison, this is it.

Today marks another banal boast from a crypto exchange, which actually issued a publicly available press release to demonstrate its excellence in resuming withdrawals of client money back to its rightful owners – the clients.

That is like boasting about having sewed someone’s leg back on after intentionally chopping it off.

Based in Valetta, Malta (if that doesn’t make you run for the hills, what will?), OKEx stopped withdrawals, blaming a technical error. Aren’t crypto exchanges constantly engaging in hyperbole about how superior their technology is, and how digital assets are far more modern and flexible than traditional ones? If so, why do so many of these charlatans continue to foist withdrawal problems upon their customers and then blame the very technology that they orchestrated and often trumpet from the highest mountain to be the best in the world?

Yes. It’s rather like unkempt, stammering British prime minister Boris Johnson standing up in Parliament and locking the nation away for a year, destroying business and livelihoods forever and telling them brazenly that his ‘data’ is correct and that it’s for their own good.

OKEx states that it is “a world leading cryptocurrency spot and derivatives exchange” and that it “has restored its full range of services for its users by reopening withdrawals of all digital assets as of 8:00 am UTC, Nov. 26. The OKEx team ran comprehensive security checks prior to resuming normal operations of the hot wallet system to ensure the safety of users’ funds.”

It would be interesting to see if its customers who were unable to withdraw THEIR money, or whether the enforcers of European EMIR regulations which these companies fall outside of would consider that to be ‘world leading’.

“While all other operations of the exchange remained unaffected, withdrawals from OKEx were temporarily suspended on Oct. 16 to guarantee the safety of users’ assets, which remains OKEx’s number-one priority at all times. Over the years, the exchange has gained unrivaled experience in safely operating digital wallets, assets and transactions with no major security incidents” said the company this morning.

Telling customers they cannot have their own money on a vague premise of guaranteeing the safety of users assets should be enough to ensure that any potential depositor runs for the hills, especially considering that blocking withdrawals is often the first sign that a crypto exchange is about to cease operations. One cannot say it is about to ‘disappear’ as that infers that it had an appearance in the first place.

“We are pleased to be back to operating at full capacity, with all trading activity, deposits and withdrawals functioning as expected and security measures in place to ensure the safety of user assets. Beyond continuing to provide more diverse products, trading tools and innovative solutions for our customers, the security of their funds is our primary concern,” said OKEx CEO Jay Hao.

Unbelievably, OKEx then says that it blocked withdrawals for the good of its own customers. “OKEx maintains rigorous security standards to ensure the safety of digital assets through a combination of cold storage and a hot wallet system that is protected by the exchange’s online and semi-online risk-management systems, semi-offline multisignature services, big data risk-management systems and other protection mechanisms. Working together, they check for abnormal behaviors in transaction amount or frequency and delay or refuse any transactions deemed suspicious, thereby quickly preventing large withdrawals from malicious actors” the company asserts.

This is flawed logic in so many ways. Firstly, surely a highly advanced ‘world leading’ electronic exchange would have ID, KYC and AML procedures absolutely perfected, and would only conduct a withdrawal to account holders, just like many of the companies they often denigrate do routinely with no issues. Secondly, that is client money. It is not the property of OKEx, and therefore it is not lawful for them to withhold withdrawals. There are many other reasons which all compliance officers in all electronic trading companies will now be referring to whilst reading this.

“We are working hard to restore user trust and will be rolling out a solution to improve our internal processes so that we can try our best to prevent this type of situation from happening in the future,” Jay Hao added.

OKEx says that it has secured its reputation and position as a world-leading exchange through its continued innovation and diverse product offering as well as strict adherence to laws and regulations around the world, establishing robust Know Your Customer checks and anti-money laundering mechanisms. If that is the case, why does it need to suspend withdrawals due to lack of such systems?

The company concluded by stating that building on its solid platform and loyal user base in conjunction with continued collaboration with regulators, OKEx looks forward to continuing to serve customers and furthering the development of the blockchain space.

Don’t hold your breath.

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