OKEx threatened by trader’s loss on bitcoin
A massive wrong-way bit on bitcoin threatens the Hong Kong-based cryptocurrency exchange OKEx with an unfilled position estimated at $420m.
Reports suggest that an OKEx trader processed a US dollar/bitcoin (USD/BTC) futures contract worth around $460m this week, timing it just as the price of bitcoin fell sharply so that the exchange attempted to liquidate the position.
However the size of the contract apparently made it impossible to cover the trader’s shortfall and, having only partially liquidated the trade, the exchange now faces the prospect of a $420m unfilled position.
This threatens in turn to burn counterparties and dent confidence in one of the world’s largest cryptocurrency venues. Bloomberg reports that as OKEx operates a “socialised clawback” policy for such circumstances, it will force futures traders with unrealised gains this week to give up about 18% of their profits.
“Everyone is talking about it,” a Tokyo-based adviser to Bitcoin.com, Jack Smith told the news service in reference to the OKEx trade.
Not the first
Bloomberg notes that while OKEx ha instigated clawbacks before, the size of this latest episode has attracted much attention in crypto circles. It adds that the loss underscores the risks of operating on lightly regulated virtual currency venues, which often allow high levels of leverage and lack the protections investors have come to expect from traditional stock and bond markets.
The exchange, which only identified the problem trader by the ID number 2051247, said the position was initiated at 2am Hong Kong time on last Tuesday.“Our risk management team immediately contacted the client, requesting the client several times to partially close the positions to reduce the overall market risks,” OKEx said.
“However, the client refused to cooperate, which lead to our decision of freezing the client’s account to prevent further positions increasing. Shortly after this preemptive action, unfortunately, the BTC price tumbled, causing the liquidation of the account.”
OKEx added that it injected 2,500 bitcoins – currently worth about $18 million – into an insurance fund to help minimise the impact on clients. The exchange, which requires traders to pass a quiz on its rules before they begin investing in futures, also outlined planned changes to its margin system and liquidation procedures that it said would “vastly minimise the size of forced liquidation positions” and make clawbacks less frequent.