A black swan appeared on OKEx, what impact will it have on the industry?

OKEx Flies Out of Black Swan

A black swan has stirred up the long-dormant panic in the cryptocurrency world.

On October 16, OKEx issued an announcement stating that some of the company's private key holders are cooperating with the public security authorities in the investigation and are currently out of contact, making it impossible to complete the authorization and suspending user withdrawals.

Subsequently, OKLink (01499.HK) issued an announcement stating that Xu Mingxing is currently under investigation by Chinese public security authorities and the company has not yet contacted Xu Mingxing to verify the information.

According to BitUniverse data statistics, the current assets on OKEx amount to 21.4 billion yuan, including nearly 200,000 bitcoins, 1.39 million ethers, etc.

At the crossroads, some people choose fear, some people choose greed.

One group of people bought the low-priced USDT on OKEx with their funds, while the other group sold their assets on OKEx at a discount and fled quickly. The two groups passed by each other, called each other stupid, and then quickly disappeared in the crowd. Investor Xia Houyi told Shenchao that he had bought millions of USDT at a low price.

Who will be the winner?

Crypto analyst Li Feng is optimistic about this. "From the current known dynamics, this incident has nothing to do with the exchange business. It is more of Xu's personal problem. OKEx is operating normally, so the impact on the industry is limited."

Lei Zhen, a former partner of OKEx, also said in the WeChat group: "It has nothing to do with blockchain. Old Xu (Xu Mingxing) is cooperating with the investigation on other matters. We also hope to help him solve this problem as soon as possible."

On October 21, OKEx resumed fiat currency trading, and the panic gradually subsided.

When a personal crisis is magnified into an exchange crisis or even an industry crisis, it leads to excessive panic and anxiety.

Black Swan Impact

Will the OKEx black swan incident have an impact on other exchanges and even the entire industry?

Beijing Lian'an conducted a statistical analysis on the on-chain data of the two major exchanges, Huobi and Binance. Judging from the results, the impact is very limited.

On the day when OKEx temporarily withdrew its coins, Binance's net inflow of Bitcoin decreased, and then the net inflow continued to increase. Beijing Lian'an believes that due to Binance's characteristics as a global exchange, users have strong confidence in its policy risks.

As an exchange with similar geographical characteristics to OKEx, Huobi was more obviously affected, but only on Friday. Subsequently, Bitcoin outflows decreased significantly, and net inflows rebounded rapidly, and have now returned to their previous stable levels.

From the trend point of view, under the influence of this black swan event, the impact on Huobi is also ultra-short-term, and the data in the next one to two weeks will further reveal its recovery. At least for now, Huobi users have not experienced sustained fluctuations due to this incident.

It is worth noting that the rebound trend of Huobi Binance's Bitcoin net inflow is the same as the price trend of Bitcoin, which shows that the black swan event has extremely limited impact on both the market and the leading exchanges.

The ones who were really hurt in the incident were the small and medium-sized exchanges that lacked financial strength and faced repayment crises.

DragonEx officially announced that due to the OKEX incident, a large number of users had a crisis of confidence in centralized exchanges, which led to a run on the platform, and the platform's reserve level deteriorated rapidly. The team decided to suspend the recharge and withdrawal services of all currencies on the platform.

Jack, a cryptocurrency analyst, believes that the wave of withdrawals brought by OKEx mainly impacts small and medium-sized exchanges. In the long run, it is actually beneficial to leading exchanges such as Huobi and decentralized wallets. However, on the trading side, decentralized exchanges still cannot replace centralized exchanges such as Huobi and Coinbase.

As one of the world's most well-known exchanges, Huobi has many investors. BitUniverse statistics show that the total transparent assets of Huobi Exchange is 36 billion yuan, ranking second in the world, second only to Coinbase. Therefore, Huobi's dynamics have attracted much attention from investors.

Judging from the current data, the OKEx incident has little impact on Huobi, but some investors are still concerned about whether Huobi will be a safe haven for digital assets in the long run?

In the opinion of legal affairs worker Li Chen, among exchanges, Huobi's overall risk is relatively small.

“The biggest difference between Huobi and other exchanges is that Huobi does not have its own OTC business and only provides information display, and OTC is precisely the biggest risk in the cryptocurrency industry.”

In 2020, anti-money laundering, anti-fraud, and anti-black production have always been the focus of the work of the central bank and the police. The fines for anti-money laundering announced by the central bank in the first quarter were almost the same as last year. What is worrying is that criminals now frequently use cryptocurrencies to engage in illegal activities such as fraud, money laundering, and gambling, which has also made the OTC market a "dangerous place" for a time, and frozen cards have been born.

As the largest OTC market, Huobi has always maintained "restraint" and "high pressure".

Restraint. Huobi Global only provides information display OTC services and does not participate in the acceptance of funds. Any risky funds will not flow into the exchange.

High pressure. Huobi has cracked down on all kinds of illegal funds and isolated risky funds from the exchange.

On August 5, Huobi carried out a new upgrade of its risk control system, which was also the longest risk control upgrade this year. The purpose was to create a forbidden zone where illegal activities could not hide, which also made black money further away from Huobi.

Regulation and compliance are not the enemy

Looking back at the cryptocurrency market in 2020, if we want to summarize a few key words, in addition to "312" and "DeFi", there must be another word - "regulation". Looking around the world, 2020 is the year of regulation.

In the early morning of October 2, two blockbuster news broke the silence of the cryptocurrency circle at night: the U.S. Department of Justice and the U.S. Commodity Futures Trading Commission (CFTC) filed criminal and civil lawsuits against executives and entities of BitMEX, the world's largest contract exchange; second, BitMEX CTO was arrested, while BitMEX CEO Arthur Hayes and two other executives were not in the United States and had not been arrested yet.

According to the New York Times, U.S. prosecutors said that after BitMEX was informed that it was used by criminals for money laundering, it still did not take any measures, making BitMEX a tool for money laundering and violating sanctions.

BitMEX’s experience has undoubtedly sounded a wake-up call for investors: overseas exchanges are not necessarily safe, and may even face greater risks and be subject to cross-oceanic law enforcement under the influence of the United States’ long-arm jurisdiction.

In contrast, Huobi cleared out its U.S. users early on and operated in the U.S. as an "independent entity" through compliance licenses, with the lowest risk of being subject to U.S. long-arm jurisdiction.

Therefore, overseas exchanges are not synonymous with security, compliance is. The more compliant, the safer. For example, Coinbase, Bakkt, and Huobi have been moving forward on the road of compliance and have been widely praised.

In the 7 years of operation, Huobi has not had any security incidents or major negative crises, which shows that its deep technical accumulation and its “don’t be evil” values ​​are fully implemented.

As early as 2019, Huobi independently developed an on-chain asset flow monitoring and tracking system - the "Astrology System", launched the "Technology Assisted Police Channel", and carried out relevant exchanges and cooperation with police in Putian, Fujian, Changsha, Hunan, Luoyang, Henan, etc., providing important data for judicial authorities in data analysis, evidence collection, and fund tracking in blockchain fraud, money laundering and other cases. Huobi received letters of thanks from police in many places.

In this regard, Zeng Jie, a lawyer at Guangqiang Law Firm, interpreted the deep meaning behind it, "This actually means that this kind of overseas trading behavior, as stated in Regulation 94, is a legitimate personal trading and holding behavior of citizens. The platform is not the central counterparty. The regulator believes that there is no legal problem with the inter-personal OTC trading information service provided by the platform. However, the trading behavior must be supervised to fulfill the anti-money laundering and anti-fraud obligations."

During the National Day holiday, an anti-fraud education video was circulated in the cryptocurrency circle, and Officer Chen continued to popularize anti-fraud knowledge to investors. In the video, Officer Chen said, "Huobi is legitimate," and warned investors, "I have been advising everyone not to switch to other small platforms after purchasing coins on Huobi. There are two kinds of frauds. The first is being deceived, and the second is helping criminals to launder money."

In any case, supervision and compliance have never been the enemies of investors. A chaotic order is always accompanied by deception and evil. The more compliant, the safer. Don't let the black swan cloud your eyes. Please embrace compliance and embrace safety.