BitForex, a former prominent player in the global cryptocurrency exchange landscape, has mysteriously disappeared from the web. With its site now offline, users are left in a state of confusion, uncertain about the status of their funds and transactions. To understand the cause of this unexpected vanishing act, it’s crucial to examine the series of events that unfolded around BitForex in recent days.
The Sequence of Events Unfolding
Recent developments reveal that Hong Kong’s regulatory authority for securities and futures has issued a public warning regarding BitForex, suspecting fraudulent activities. The Securities and Futures Commission (SFC) indicated that BitForex, which claimed to be based in Hong Kong, had not obtained the necessary licensing to operate as a virtual asset trading platform in the region and had never submitted an application for such a license. The SFC has even requested the local police to restrict access to BitForex’s website and its social media accounts. Reports indicate that on February 23, BitForex’s online presence ceased following the withdrawal of approximately $57 million from the exchange’s hot wallet. Users attempting to access the site were met with a message stating, “Sorry, you have been blocked.”
Crypto investigator ZachXBT revealed that on the same day, BitForex’s hot wallets witnessed outflows totaling $56.5 million. This included more than $54 million in TRB tokens, close to $1 million in ETH, and upwards of $250,000 in USDC. After these withdrawals, BitForex halted all further transactions and has remained silent regarding any developments since then. ZachXBT also noted two key events: the recent resignation of BitForex’s CEO and the exchange’s substantial holdings of $TRB and $OMI tokens.
Understanding the CEO’s Resignation
The circumstances surrounding BitForex CEO Jason Luo’s resignation were clarified in a letter he addressed to the “BitForex Family” on January 31, 2023. In his correspondence, Jason stated that his departure was motivated by the arrival of a new leadership team aimed at propelling BitForex to new heights. He asserted, “I believe they will guide BitForex towards even greater horizons. I will continue contributing my wisdom and strength to BitForex because this is my eternal commitment to this home.” Despite the positive tone of the letter, no hints of impending trouble were mentioned. In fact, Jason lauded BitForex as a key player in the expanding digital asset sector, expressing unwavering confidence in the platform’s future. However, since issuing this letter, Jason’s whereabouts have become untraceable.
Insights into $TRB and $OMI Tokens
BitForex’s significant holdings include 18% of the total supply of $TRB, which is the native token of Tellor, a decentralized oracle protocol that incentivizes accurate data reporting on-chain while penalizing misinformation through disputes and slashing. In contrast to TRB’s decline from nearly $117 to just over $115 in the past week, BitForex also possessed 7% of the total supply of $OMI, which has experienced a positive price trend, rising from approximately $0.0009 to $0.001. ECOMI, the issuer of $OMI, aims to facilitate transactions within the VeVe digital collectibles platform, which claims to be a leader in mobile-first digital collectibles.
Given these circumstances, the factors highlighted by ZachXBT regarding the CEO’s departure and the substantial token holdings do not appear to directly indicate a crisis.
Events Preceding BitForex’s Closure
In the days leading up to its sudden disappearance, BitForex’s website displayed no signs of distress, boasting over $2 billion in trading volume. Data from CoinGecko shows that trading volume plummeted from $2.5 billion to $1 billion between February 22 and February 24, eventually reaching a standstill. However, when assessing normalized data, which accounts for web traffic to identify potential fraudulent manipulation, a different narrative emerges. This analysis revealed that BitForex’s actual trading volume on February 22 was a mere $25 million, suggesting possible attempts by the exchange to obscure underlying issues. The performance of the platform’s native BF token also prompts scrutiny as a potential sign of irregularities.
Examining the Native BF Token
The BitForex Token has a maximum supply of 10 billion, currently held by 2,208 users, with a total of 3,236 transfers recorded. The last transfer occurred almost a week ago, involving over 1.4 million tokens. Additionally, three transfers were executed around 19 days prior, each exceeding 50,000 tokens. The details of these transactions, including the wallets involved, are accessible for review.
Speculations Surrounding BitForex’s Situation
The combination of the CEO’s resignation, the significant fund transfers, and the sudden inaccessibility of the website raises suspicions of malicious intent. It is clear that the situation did not unravel overnight; rather, it appears to be the culmination of events that may have gone unnoticed by average investors and traders. Historical reports, such as one from Chainalysis in 2019, had already highlighted potential irregularities within BitForex’s operations, indicating that the investor community may have overlooked these warning signs.
Insights from the 2019 Chainalysis Report
The Chainalysis report identified suspicious trading patterns on BitForex prior to the recent turmoil. The analysis focused on reported Bitcoin trading volumes among the top five exchanges, including BitForex. While other platforms had some irregularities, BitForex’s trading volume was notably concerning. The report pointed out that the exchange’s rapidly increasing reported trading volume since its inception in 2018 was coupled with an extremely high trade volume to on-chain volume ratio, suggesting significant volume inflation. By the end of the measured period, BitForex reported an alarming trade volume ratio of 40,000:1, implying that for every Bitcoin deposited, the exchange falsely reported trading activity equivalent to 40,000 Bitcoins. This led to the conclusion that BitForex had likely exaggerated its trading volumes substantially, with actual liquidity being just 1/800th of what was reported.
This revelation aligns with broader findings that around 95% of reported Bitcoin trading volume was potentially inflated. The average daily trading volume of Bitcoin was reported at about $6 billion, yet the actual figure may have been around $273 million.
Conclusion
Currently, BitForex stands accused of misreporting its trading volumes. However, it is clear that questions about its operations and potential irregularities have lingered in public discourse for some time. This situation underscores the importance of monitoring both macro and microeconomic factors in any market. Investors are reminded of their responsibility to remain informed and conduct thorough analyses of the environments in which they choose to engage.
