Hotbit – a Shanghai-based cryptocurrency exchange – has indefinitely frozen all trading, deposits, and withdrawals of its users’ crypto assets.
Yet unlike other firms, Hotbit said that its suspension of services is related to a legal battle it’s facing with law enforcement agencies, rather than bear market liquidity issues.
Hotbit’s Legal Drama
According to an announcement from the company on Wednesday, the activity freeze is due to a former Hotbit employee having been involved in a project that law enforcement believes may have violated criminal laws. The exchange clarified that this project violated Hotbit’s internal policies, and wasn’t known at the time.
As such, numerous Hotbit senior managers have been subpoenaed by related enforcement agencies, and are now assisting with their investigation. Authorities have also frozen some of the exchange’s funds, which has prevented it from continuing operations as normal.
“Hotbit and the rest employees of Hotbit’s management are not involved in the project and have no knowledge of the illegal information involved in the project,” said the company.
The firm highlighted that its users’ funds, though frozen, are still entirely safe with the exchange.
While suspended, any unfilled open orders previously made by customers have been canceled to “prevent loss due to market fluctuations.” Furthermore, all leveraged ETF positions were forcibly liquidated at 12:00 PM UST on August 10th.
Users will continue to earn income from their “investment products” during the freeze. Lastly, they will be provided a compensation plan once Hotbit’s website resumes operation, at which time still remains unclear.
In a tweet following the announcement, Hotbit said that it is “continuously applying for the release of the frozen assets.”
Another Platform Freezes Funds
Hotbit is far from the first crypto platform since June to freeze user withdrawals, with companies like Celsius, Voyager, and Hodlnaut all having done the same.
That said, the former companies’ causes for doing so ultimately stemmed back to liquidity issues triggered by the crypto bear market. In other words, they were actually insolvent and unable to pay their debts. As such, Celsius, Voyager, and Three Arrows Capital have all filed for bankruptcy.
Similar to Hotbit, CoinFLEX was also forced to freeze withdrawals due to just one individual’s actions in June. That man was Roger Ver – a longtime Bitcoin Cash proponent who allegedly failed to meet his $47 million margin call at the exchange.