Hotbit, a China-based cryptocurrency exchange, has announced that it will cease operations on June 21, 2022. The company has cited several challenges that have impacted the industry and its operating conditions as reasons for the decision. In a statement released on May 22, the exchange urged its users to withdraw their assets before the deadline.
Challenges Faced by Hotbit
Hotbit has revealed that the continuous outflow of funds from centralized exchanges, following several crises that hit the crypto industry, has been one of the significant challenges it has faced. The firm cited its investigations in August 2022, alongside FTX’s collapse and USD Coin (USDC) depeg, as significant catalysts for its deteriorating operating conditions. Hotbit noted that the subsequent collapse of large centralized institutions had changed the trend in the crypto industry, with centralized entities left embracing regulation or becoming more decentralized.
According to the exchange, centralized exchanges are becoming increasingly cumbersome, with complex and interconnected businesses that are difficult to comply with regarding compliance or decentralization. They are unlikely to meet long-term trends, which is why the Hotbit team believes that centralized exchanges are not sustainable in the long run.
Cyber Attacks and Project Defect Exploitation
Hotbit has revealed that it has suffered numerous cyber attacks and the exploitation of project defects by malicious users, leading to significant losses for its operations. The firm said that its operation model of supporting a diverse range of assets is unsustainable from a risk management standpoint. Hotbit has served 5 million users for five years and four months, holding an Estonian MTR license, an American MSB license, an Australian AUSTRAC license, and a Canadian MSB license, according to CoinMarketCap.
Several centralized crypto entities, including FTX, Celsius, and BlockFi, collapsed last year amid the record market downturn, leading to increased regulatory scrutiny of the crypto industry from financial regulators worldwide. Hotbit added that it was folding up because it has suffered numerous “cyber attacks and the exploitation of project defects by malicious users.” According to the firm, this has led to significant losses for its operations, saying its “operation model of supporting a diverse range of assets is unsustainable from a risk management standpoint.”
Following FTX’s collapse, centralized exchanges have faced increased regulatory scrutiny about their operations, with several crypto exchanges like Beaxy and Bittrex forced to exit the U.S. due to regulatory actions. Binance canceled its derivatives license with the Australian Securities and Investments Commission (ASIC) and closed its Canada operations. Others like Coinbase and Gemini have expanded their operations abroad due to the uncertain regulatory environment in the U.S.
Hotbit’s decision to cease operations is a significant development in the crypto industry. The challenges cited by the exchange, including cyber attacks, project defect exploitation, and regulatory scrutiny, have impacted the industry as a whole. The shift towards decentralization and compliance is likely to continue, with centralized exchanges increasingly becoming unsustainable in the long term. As the industry evolves, it will be interesting to see how other players respond to these challenges and adapt to the changing regulatory landscape.