OKEx suspends withdrawals – should you be worried?

Malta-based cryptocurrency exchange OKEx suspended withdrawals yesterday, instantly stirring panic in the market. The exchange has reassured its users that their funds are safe, but this has done little to dispel the panic. Should this incident worry you as a crypto investor?

The Withdrawal Suspension

OKEx revealed that it had suspended withdrawals today via Twitter.

“Withdrawals of digital assets/cryptocurrencies at OKEx are currently suspended. Other functions are up and running,” the exchange stated. It also reassured its users that the incident had not affected their funds.

OKEx followed this announcement with a notice on its website giving more details about the incident. As per the notice, the service interruption was caused by one of its private key holders who was “currently cooperating with a public security bureau in investigations where required.” The exchange revealed that it had lost touch with the concerned private key holder, causing the withdrawal interruption.

The incident would not interrupt all the other services, the exchange insisted.

Jay Hao, the OKEx CEO also sought to reassure the users that their funds were safe and settle some of the panics. Hao took to Twitter to reveal that the investigation on the private key holder was personal and wasn’t related to OKEx.

Chinese police allegedly arrest OKEx founder

Just hours later, reports emerged claiming that its founder Star Xu was behind bars. According to Chinese news publication Caixin, Xu has been in custody for almost a week now.

The publication cited two trusted sources at the exchange on its report. As per the sources, authorities had arrested Xu at least seven days ago and they hadn’t released him since. Why they had arrested him and where they were currently holding him remain unknown.

In yet another report by a Chinese outlet, this time Mars Finance, more details emerged claiming that police had arrested Xu in connection with OK Group’s Hong Kong listing. Reportedly, they had arrested him together with two other OKEx executives who had later been released on bail.

Xu has had an encounter with authorities before. In 2018, Chinese police held him for some time, accusing him of a connection to fraudulent activities involving a-little-known crypto called WFEECoin. Xu denied any links to the crypto and late, the police let him go. Authorities clarified that they were only holding him to aid in their investigations and that at no time had they arrested him.

Markets React

Whether the OKEx withdrawal suspension was just a small mishap or the beginning of a major crypto scandal (there have been quite a few in the past year), it still had a significant effect on the market. Bitcoin and OKB, the native token of the exchange, showed the biggest impact.

In the 30 minutes following the news, Bitcoin shed off 3% of its value. The crypto dropped from $11,514 to $11,190 quickly on most major exchanges. This came as no surprise, with OKEx being one of the largest BTC spot markets globally – it currently ranks 6th as per Coin Market Cap data, processing $3.3 billion in the past 24 hours.

The incident had also significantly impacted the OKB token, predictably so. Since the news broke out, the token has shed off over 11% of its value to trade at $5.1 at press time.

Should You Be Worried?

The OKEx incident has huge ripple effects that go beyond the Bitcoin price. First, it showed the danger that lies in entrusting your crypto to a centralized exchange, especially in light of recent events. Just recently, hackers attacked KuCoin and made away with over $200 million worth of digital currencies.

What’s most interesting about the OKEx incident is that one person, a private key holder, led to a total suspension of withdrawals for hundreds of thousands of traders.

The president of The Bitcoin Association of Hong Kong, Leo Weese captured it best on Twitter, stating, “That one person sits in China holding the keys to an entire offshore cryptocurrency exchange is probably the most surprising thing about this industry I learned this year.”

Immediately following the suspension of withdrawals at OKEx, the crypto universe took to Twitter to air their frustrations. One mantra that kept coming up was the famous crypto adage, “not your keys, not your coins.”

So, should you be worried? Probably not. OKEx will probably resume full operations in a day or two and we will all forget this incident.

However, the key takeaway from the incident is that you need to be more vigilant about how you store your coins lest you end up like the thousands of crypto owners who have lost their life savings after the collapse of Mt. Gox, QuadrigaCX, Cryptopia, Bitgrail, Bitfloor…. the list goes on.