The price of cryptocurrencies is influenced by a lot of factors, including major updates from exchanges. Exchanges play such a big role as without them trades cannot take place and without cryprocurrency trading, their value could be stagnant and very low. The existence of exchanges where these cryptos are listed ensure that holders of these crypptos can buy and sell, or send and receive with ease.
On Oct. 16, OKEx, one of the world’s biggest crypto asset exchanges, made an announcement on the temporary suspension of withdrawals on the same day. The news had a negative on the price of Bitcoin, which plunged 3% in 30 minutes across other major exchanges.
The announcement claimed that one of the holders of the exchange’ s private keys, who it has been out of touch with recently, is currently operating with a public security bureau concerning ongoing investigations. The associated authorization could not be completed, but digital asset withdrawals could resume immediately once the key-holder could be reached and authorize the transaction.
The drop in BTC price was noticed immediately after the announcement, from 11514 to 11190. This was a 3% drop within 30 minutes and it caused a market-wide pullback.
The Multi-Signature System
Bitcoin exchanges have cold storage wallets, wallets not connected to the internet, that ensure in case of any hacks people’s BTC is protected. The exchanges have a multi-signature system that processes withdrawals from these wallets.
In a multi-signature system, to get funds from cold wallets, an exchange often distributes several private keys to its owners and executives, where majority of them must be present to sign off transactions. For OKEx, one of these executives with a private key was not available to approve the withdrawals.
The CEO of OKEx, Jay Hao, said,
All operations @OKEx except digital asset/cryptocurrency withdrawals remain unaffected. All your funds and assets are safe. The investigation concerns a certain private key holder’s personal issue only. Further announcements will be made.
BTC price was affected negatively because OKEx is a major exchange that processes substantial amounts of spot and futures volume and there is usually heightened market speculation when an exchange with ties to China make such announcements.
The co-founder of 8BTC, Red Li said that OKEx first stated withdrawal would be suspended at 15PM but quickly changed to 11AM and that rumor has it that over 800 accounts in ‘certain’ exchanges are involved with cross-border money laundering.
Leo Weese, president at The Bitcoin Association of Hong Kong, said he was surprised that one person could affect an exchange’s entire cold storage multi-signature system. His exact words were,
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. That customers don’t demand transparency about key management comes in at a close second, though.
This is not the case for majority of exchanges however. For the case of BitMEX, majority of its private key-holders were able to sign off transactions earlier this month when the CTO, Samuel Reed, was arrested.