Hotbit suddenly shuts down after only 5 years, and it is hard to find a way out for centralized crypto exchanges

On May 22, 2023, Hotbit, a CEX (centralized cryptocurrency exchange) headquartered in Hong Kong, China, suddenly announced that it would cease operations, and users must withdraw their remaining assets before UTC 04:00 (Beijing time 12:00 PM) on June 21, 2023. This is the latest centralized crypto exchange to announce its closure after Bittrex US.

Hotbit faces multiple problems

Hotbit, which was founded in 2018 and is registered in Hong Kong and Estonia, claims to have 5 million users, most of whom are located outside of China. The company cited deteriorating operating conditions, changes in the crypto industry and risk management issues as reasons for the closure.

Hotbit’s downfall began in August 2022, when an investigation into a former employee forced the platform to suspend operations, as law enforcement authorities believed the employee was suspected of violating criminal law. As a result, since the end of July last year, several Hotbit executives have been summoned by law enforcement authorities to assist in the investigation. In addition, law enforcement authorities froze some of Hotbit’s funds, making it impossible for Hotbit to operate normally. Because the exchange is registered in Hong Kong, some users speculated that it might have been investigated by the Chinese government.

At the same time, the crypto industry is also suffering from a series of crises, from the collapse of the well-known exchange FTX to the banking crisis that led to the decoupling of USDC . A series of events caused user funds to flow out of centralized exchanges (CEX), and Hotbit's cash flow began to deteriorate.

In addition to external threats, there are also internal worries. Hotbit Exchange has been the target of cyber attacks many times, and many of its projects have been exploited by malicious actors, further exacerbating the challenges it faces.

The management team cited “changing industry trends,” emphasizing the dilemma facing the crypto market after the FTX collapse – either accept regulatory rules or become more decentralized.

The announcement reads: “The Hotbit team believes that centralized exchanges (CEX) are becoming increasingly cumbersome, with highly complex and interconnected businesses, making it difficult to comply with regulations, whether compliant or decentralized, and unlikely to be in line with long-term trends.”

Failed CEX Case

Since the advent of cryptocurrency exchanges, there have been countless centralized trading platforms that have closed down due to various reasons such as security vulnerabilities, regulatory issues, and poor management. The following are some of the larger failure cases:

Mt. Gox (2014): Once the largest Bitcoin exchange on the Internet, handling more than 70% of all Bitcoin transactions, Mt. Gox suddenly closed due to a security breach, resulting in the loss of 850,000 BTC.

Bitfinex (2016): While Bitfinex is still in operation, it suffered a major security breach in 2016. Hackers stole 119,756 BTC, worth approximately $72 million at the time. The stolen funds have yet to be fully recovered.

QuadrigaCX (2019): QuadrigaCX, Canada’s largest cryptocurrency exchange at the time, abruptly ceased operations and filed for bankruptcy in 2019. The company announced that it had lost private keys and access to cold wallets holding customer funds, resulting in significant losses.

Cryptopia (2019): New Zealand-based cryptocurrency exchange Cryptopia faced a security breach in January 2019, resulting in the loss of millions of dollars worth of crypto funds. Following the attack, the exchange was forced to shut down and file for bankruptcy.

FTX (2022): FTX is one of the largest cryptocurrency trading platforms by trading volume, but it declared bankruptcy on November 11, 2022, failing to meet withdrawal requests. It was later revealed that FTX funneled customer funds to Alameda Research for risky trades and incurred huge losses. The exchange owed more than $9 billion to more than 1 million creditors.

Centralized exchanges are “too difficult”

Hotbit's closure is not an isolated incident, but reflects a larger trend in the crypto industry amid regulatory uncertainty, with Coinbase establishing an international exchange outside the United States. Earlier this year, the Commodity Futures Trading Commission ( CFTC ) sued Binance, the world's largest cryptocurrency exchange, for allegedly violating trading and derivatives rules. According to The Information , two people familiar with the matter revealed that Zhao Changpeng has been seeking strategies to reduce his holdings in Binance US .

The collapse of FTX has also increased people's skepticism about centralized crypto custody and trading, and many professionals have called on users to hold their own cryptocurrencies or trade them on decentralized exchanges. The emergence of decentralized exchanges ( DEX ) provides an alternative to centralized exchanges, and their growth has captured a large part of the CEX market pie.

In a sense, Hotbit’s story is a reflection of a large part of the industry’s participants—the skyrocketing followed by the plummeting, and the ambitions met with cruel reality. Its closure is a reminder that even in the decentralized crypto world, the shortcomings of traditional finance—liquidity issues, regulatory scrutiny, and operational threats—still dominate, and platforms that can adapt to changing regulations, maintain strong security measures, and win the trust of users can gain a foothold in emerging markets.