At the end of last week, according to data from on-chain analyst ZachXBT, three of BitForex's hot wallets saw a total outflow of around $56.5 million. Shortly after this, the Hong Kong-based cryptocurrency exchange stopped processing withdrawals without explanation.
Even now there has been no official announcement. The exchange's website is down and the team is non-responsive. Users report various problems including zero balances and login failures. The admin of the official Telegram group has allegedly changed their username and assumed 'radio silence'.
The only pages still available on the exchange's website are the support section. The latest updates are the announcements of new token listings and Jason Luo's resignation as CEO on January 31. Luo had been a part of the team since the inception of BitForex six years ago.
BitForex has been out of the spotlight since last spring, when it was warned over unregistered operations by Japan's FSA. In 2019, Chainalysis accused the exchange of faking volumes, claiming that “Bitforex reported 40,000 bitcoin worth of trade volume for every 1 bitcoin that enters the exchange.”
BitForex used to be one of the largest crypto exchanges, but CoinMarketCap doesn’t currently provide any data on the exchange, calling it 'untracked'. Coingecko says that “there have been reports of suspicious activity involving the pausing of withdrawals on this exchange,” referring to the ZachXBT post.
Crypto exchanges operating in Hong Kong must submit an application for a virtual asset trading platform (VATP) license from the city’s Securities and Futures Commission (SFC) by February 29. Failure to do so will mean that the business will have to wind up their operations and leave the city within three months. Presently, only OSL and HashKey have obtained their Hong Kong VATP licenses.
Hong Kong tightened its grip on VATPs after the JPEX scandal last Autumn. The exchange then hiked withdrawal fees to 999 USDT and ceased its Earn program in September. By November, 66 people, including social media influencers, had been detained over their links to the case. Following the JPEX scandal, the SFC promised to spread transparent and full information on the topic and begin investor education to increase awareness of fraud prevention. The authority also announced the publication of a special alert list of suspicious exchanges and lists of VATPs at different stages of licensing. Surprisingly, BitForex is not mentioned in any of them.
It seems increasingly unlikely that the BitForex saga will have a happy ending. The combination of huge withdrawals, silence from the team and no announcements, together with the recent resignation of the CEO, give the impression of another exit scam. We will continue to Observe the investigation.
