BitForex Disappears Without a Trace—Website Vanishes, Investors Left in Limbo

BitForex, once a leading global crypto exchange, has vanished from the internet. With its website now inaccessible, its users find themselves bewildered, grappling with uncertainty regarding the fate of their assets and transactions. But what could be the reason behind such an unexpected disappearance? For that, we would have to study the chain of events that BitForex witnessed over the last week or more. 

The Chronology in Reverse

Let's start with the latest news. Hong Kong's regulator for securities and futures markets warned the public about BitForex for suspected fraud. The SFC stated that BitForex, which was “purportedly headquartered in Hong Kong,” had neither been licensed by the SFC nor did BitForex ever apply for a license to operate a VATP in Hong Kong. The SFC even asked the Hong Kong Police to block access to BitForex's website and social media pages.

Reportedly, on February 23, BitForex went offline after US$57 million worth of funds were withdrawn from the exchange's hot wallet. Soon, its users were met with a non-functional website displaying the message, “Sorry, you have been blocked.”

ZachXBT, a crypto sleuth, reported that BitForex's hot wallets experienced outflows of US$56.5 million on February 23. These included over US$54 million in TRB, nearly US$1 million in ETH, and more than US$0.25 million in USDC.

After the outflow was complete, BitForex ceased processing further funds and has not made any official announcements since then. ZachXBT highlighted two significant developments in his investigation:

• One month ago, the CEO of BitForex stepped down.
• The exchange held 18% of the $TRB supply and 7% of the $OMI supply.

Why the BitForex CEO Stepped Down?

The answer to why BitForex CEO Jason Luo stepped down from his position is available in the letter he wrote to the ‘BitForex Family' on January 31st, 2023. According to Jason, the only reason why he is stepping down from his position is because a new leadership team will be joining BitForex to take the exchange to even greater heights.

“A new leadership team is poised to take the reins, and I believe they will guide BitForex towards even greater horizons. I will continue contributing my wisdom and strength to BitForex because this is my eternal commitment to this home.”

However, the letter did not convey any imminent danger. In fact, Jason praised BitForex and positioned it as a key player within the growing digital assets industry.

“I have boundless confidence in BitForex's future. In the ever-evolving tide of the cryptocurrency market, we have the opportunity to continue leading and achieving even more brilliance. The future of the crypto market is filled with limitless possibilities, and BitForex will be a steadfast pillar in this transformative journey.”

Jason Luo's recent activity could not be tracked and he appears to have vanished since sending this letter.

What are the Tokens $TRB and $OMI?

BitForex held 18% of the $TRB supply. TRB is the native of Tellor, a decentralized oracle protocol. It works by incentivizing data reporters to put valid data on-chain and disincentivizes bad reports via disputes and slashing. Performance-wise, its price has come down from nearly US$117 to a little above US$115 over the last seven days.

Additionally, the exchange held 7% of the total supply of $OMI. Interestingly, $OMI's price performance over the past seven days followed a positive trend. It went from nearly US$0.0009 to US$0.001. ECOMI is the issuer of the $OMI, which is intended for use in the VeVe digital collectibles. VeVe claims to be the world's leading mobile-first digital collectible platform. 

So, both the points mentioned by ZachXBT, about its CEO stepping down and the two tokens that BitForex held in significant numbers, could not lead to anything substantial. 

Events Leading to BitForex's Sudden Closure

Even immediately before going dark and inaccessible, the BitForex website showed no signs of distress. In fact, the exchange could be seen boasting over US$2 billion in trading volume. According to CoinGecko data, the trading volume at the exchange decreased from US$2.5 billion to US$1 billion between February 22nd and February 24th, then experienced a severe drop, eventually flatlining.

However, when examining normalized data—a method that accounts for web traffic statistics to identify fraudulent manipulation—the picture changes. This approach reveals that trading volumes in the crypto world can be fraudulently manipulated by exchanges with malicious intent.

For BitForex, the normalized data was reported at just US$25 million on February 22nd. This discrepancy indicates there might have been attempts by the exchange to hide something. The platform's native BF token also warrants a closer look as another potential indicator of irregularities.

What Happened to the Native BF Token

The BitForex Token has a maximum total supply of 10 billion, and, as per the latest available data, it is present with 2,208 holders and, to date, has witnessed a total of 3,236 transfers. The last transfer was carried out nearly seven days ago. The quantity transferred was as large as more than 1.4 million. 

Another three transfers were made around 19 days ago. Each of these transfers was of more than 50,000 in quantity. The wallet from which transfers have been made and the wallets that had received them can all be located here. 

What Could Have Possibly Happened to BitForex?

The CEO's departure, the transfer of funds, and then the website becoming inaccessible – all point toward malicious intent. It is quite evident that things did not go wrong all of a sudden. 

There was a build-up to it, which perhaps common investors and traders failed to see. But was it always this incomprehensible? Perhaps not. A 2019 Chainanalysis report had already taken note of probable improprieties in BitForex's functioning. It is evident now that the investor community did not pay enough heed to those findings. 

The 2019 Chainalysis Report On BitForex

The Chainalysis report made several observations regarding BitForex's suspicious trade numbers much before all these started and snowballed into something big. It started by looking at the numbers of CoinMarketCap's top five exchanges by reported Bitcoin trading volumes. These five exchanges were BitMEX, EXX, Coinsuper, BHEX, and BitForex. 

However, Chainalysis noted irregularities only in BitForex's numbers. Although the report did note that the exchange's reported trade volume had grown fast since its launch in 2018, what was really concerning about BitForex was that ‘the exchange's extremely high trade volume to on-chain volume ratio' dwarfed the baseline. This, according to Chainanalysis, is a clear sign that a substantial amount of the exchange's trade volume had been faked. 

For its analysis, the report examined the exchange's trade volume to on-chain volume ratio from the beginning of 2019 through November, noting a significant spike starting in August, followed by substantial increases in trade volume.

At the conclusion of the measured period, BitForex disclosed a staggering trade volume ratio of 40,000:1. This ratio suggests that for every bitcoin entering the exchange, BitForex reported a trading volume of 40,000 bitcoins. Such a disproportionate figure led the report to assert that BitForex likely significantly exaggerated its trade volumes. Additionally, the report contended that BitForex's true liquidity amounted to a mere 1/800th of its reported volume.

This may sound shocking, but it wasn't an isolated incident. Around the same time the Chainalysis report was published, a wide-ranging report claimed that 95 percent of all reported Bitcoin trading volume was faked. It argued that while the bitcoin market's average daily trading volume was reported to be around US$6 billion, the actual numbers could only have been around US$273 million. 

Summarily, what happened to BitForex or what it purposefully did to the crypto ecosystem is symptomatic of a greater malice. On the surface level, it could be a case of fraud and malicious intent. But, at the same time, it unveils how the overreporting of Bitcoin trade volume is embedded structurally within the system. 

In the future, more information regarding what happened to BitForex will see the light of day. But, for now, no one can end any discussion around what happened to it without discussing FTX. 

At one point in time, FTX was one of the largest digital currency exchange platforms for buying and selling crypto assets. It acquired many of its struggling peers, including Liquid Global, LedgerX, and Blockolio, to witness fast and astonishing inorganic growth. 

However, it started becoming clear that all was not well within the company since the end of 2022. Much like BitForex, analytical reports started pointing towards a lack of diversification of funds and mismanagement of entries on the balance sheet, which had listed US$9 billion in liabilities and US$900 million in assets, resulting in a negative balance of US$8 billion. 

These reports made its investors concerned about the future of their funds, leading to a mass withdrawal. The CEO was accused of using FTX funds for his personal needs, which included buying personal luxury items, financing extensive ad campaigns, and making large political donations. Binance was at first keen to buy it out but then changed its intent as more and more news relating to the mismanagement of customer funds came on the surface. 

Experts believed that the downfall of FTX had many aspects to it, including the mismanagement of funds, lack of liquidity, and unregulated withdrawals.

Conclusion

BitForex, for now, can be accused of overreporting or misreporting of its trading volume. But, it is also evident that doubts about its irregularities have existed in the public domain for quite some time. 

That is precisely why it's essential to regularly track the macro- and micro-economic conditions of any market space. Knowledge is readily accessible, and it's the responsibility of the investor to diligently keep an eye on them and conduct informed analyses judiciously.

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