An unorthodox move to change the terms on $135 million of derivative contracts has infuriated some traders and saddled several with losses. Hence, underscoring the risks of using unregulated crypto exchanges.
The Impact of Fiddling Contracts
The episode at Hong Kong-based OKEx, which claims to handle more than $1 billion of crypto trades daily, involved futures on Bitcoin Cash. In a decision that traders described as unusual, OKEx forced the early settlement of its Bitcoin Cash contracts without warning on Nov. 14, just as prices were tumbling.
Qiao, a former energy futures trader, said he would reduce his $5 million fund’s use of OKEx. This is because of the way it handled the Bitcoin Cash settlement.
“OKEx is losing its credibility,” Qiao said. “The futures contract became something nonsense, not something we could use to hedge.”
In a series of statements after the early settlement, OKEx apologized for “the inconvenience it may cause”. But, explained the decision was taken to protect customers from the volatility associated with the Bitcoin Cash split.
“After considering various scenarios, we decided that an early settlement was the fairest and rational decision to maintain an orderly market,” Andy Cheung. He is the head of operations at OKEx, responds to the questions from Bloomberg.
The trading venues with little to no regulation, have been dogged by everything from market manipulation to trading outages and cyber thefts.
A lack of confidence in crypto exchanges is one reason many institutional investors are proceeding cautiously. As they consider whether to add exposure to digital assets. The slow pace of mainstream adoption has contributed to deep losses in virtual currencies this year. Thus, erasing about $650 billion from the value of digital assets as tracked by CoinMarketCap.com.
The traders have criticized OKEx before. In August, the clients came through some losses, after it was unable to cover the shortfall. Before ceasing the contracts, OKEx announced a change to the composition of the underlying index. The move occurred during live trading and triggered a significant repricing of the contracts.
On Nov. 15, a technical malfunction at OKEx left traders unable to execute orders for more than two hours. Amber AI said in a blog post on Monday titled “OKEX — Its Time to Pay the Piper”. The firm called for “regulation and transparency at OKEx to promote and maintain a healthy & fair trading environment.”
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