Bitcoin (BTC) and crypto markets shuddered earlier on Oct. 16 as one of the largest exchanges in the industry suspended withdrawals with no prior warning.
On Oct. 16, crypto exchange OKEx tweeted that cryptocurrency withdrawals were suspended sending a shockwave throughout the ecosystem.
Withdrawals of digital assets/cryptocurrencies @OKEx are currently suspended. Other functions are up and running. Your funds and assets are safe and not affected. Details: https://t.co/vMehdsZs1b
We sincerely apologize for any inconvenience. Further announcements will be made. pic.twitter.com/t14l7z0EUL
— OKEx (@OKEx) October 16, 2020
Markets reacted with a sharp plunge in prices. Bitcoin dumped around 2.8% in a matter of minutes as it fell from $11,540 to just above $11,200, according to Tradingview.com. In the hour or so that followed, BTC had recovered back above $11,300, but was still down almost a percentage point on the day.
Naturally, the exchange’s native token took a massive beating with OKB, shedding almost 15% in the same amount of time. From an intraday high of just over $6, OKB dumped to just below $5 in its biggest one-day selloff for seven months.
So, What Happened?
The speculation started to mount over a Chinese regulatory crackdown on the exchange as Bloomberg had run a story about a police investigation, on Oct. 16.
Chinese media firm 8btc founder Red Li stated that the operation of the platform was not affected because it was a “personal problem.”
CEO of #okex just pinned a weibo, saying that it's only the "personal problem" of privatekey-holder and the operation of the platform is not affected. I could only hope Star Xu is ok and money are SAFU. pic.twitter.com/DEfvjS9BzN
— Red Li (@redtheminer) October 16, 2020
But an hour later, Li added that panic had already begun to ensure with Tether (USDT) being dumped “at a discount.”
ppl are dumping #usdt in #okex at a discount. bank run may affect other CEXs. pic.twitter.com/xDzmd8C0Nd
— Red Li (@redtheminer) October 16, 2020
This raised more questions as to why and how a global crypto exchange can have the private keys assigned to just one person, who has apparently been “out of touch,” according to staff.
Not Your Keys, Not Your Coins
The entire imbroglio brings back the old adage “not your keys, not your coins.” Centralized exchanges have the power over all assets under their management, just as a bank has the ability to close its physical doors.
Industry observers had begun to remind traders and investors that they are not in control of their funds unless they hold the private keys themselves.
Stop using centralized exchanges as your bank account, you are not in control of your funds
Secure your own keys with a hardware wallet, and become your own bank with DeFi
Non-custodial financial services is the primary reason my net worth is in tokens https://t.co/ASAcIQOBEm
— ChainLinkGod.eth (@ChainLinkGod) October 16, 2020
Crypto trader Crypto Owen Wilson reiterated the notion: “Apparently it’s not the brightest idea to keep all your digital assets on OKEx or any exchange for that matter.”