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Hong Kong Crypto Exchange Allegedly Hit by Frozen Funds

Hong Kong Crypto Exchange Allegedly Hit by Frozen Funds
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(Bloomberg) — Clients of a Hong Kong cryptocurrency exchange say they cannot withdraw funds or tokens from the exchange, and at least seven have reported the matter to the police.

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Dozens of customers have not been able to make withdrawals from Coinsuper since late November, based on a review of messages on the company’s official Telegram chat. Five clients told Bloomberg News that they reported to the police after their withdrawals were apparently frozen, leaving them unable to retrieve nearly $55,000 in tokens and cash.

The uproar over Coinsuper, which is backed by Pantera Capital, may fuel calls for broader regulatory oversight in Hong Kong. The head of the city’s securities watchdog said in November 2020 that it would propose a licensing system for all cryptocurrency exchanges, an approach that Singapore is also taking.

Coinsuper executives did not respond to calls and messages seeking comment. In response to Bloomberg’s inquiry about Coinsuper’s complaints, a Hong Kong police spokesperson said via email that they are investigating one case in which someone who purchased cryptocurrency “via an investment firm” has not been able to withdraw their funds since December.

In a Coinsuper Telegram chat, the administrator stopped responding to inquiries about failed withdrawals in late November, then resurfaced last week asking affected users to provide their email addresses. Some clients said in interviews that there was no follow-up after doing this, and the official did not respond to messages from Bloomberg.

low volume

Terry Chan, who works in the city’s financial industry, started using the platform in November 2020 because it was “too big in Hong Kong” at the time. He tried to withdraw $4,000 from the exchange in early December after noticing that trading there had become less liquid. On January 5, he filed a group complaint with the Hong Kong police along with two other affected Coinsuper customers.

Coinsuper trading app is still active, and the exchange handled about $18.5 million in volume on Friday — down from a daily peak of $1.3 billion in late 2019, according to crypto data firm Nomics. Nomics data showed that Binance, the largest crypto exchange, handled about $51 billion in transactions during the same time period.

Hong Kong uses a so-called “opt-in” regulatory regime for cryptocurrency exchanges, which means it can apply to regulation. Joshua Chu, a consultant at ONC Lawyers in Hong Kong, said the strict regulations meant it was “not very attractive” for platforms to go this route.

The city will likely move away from the opt-in model sometime this year, according to Chu. He added that it was “not uncommon” for cryptocurrency exchanges to encounter problems including long withdrawal times, highlighting that regulation may be necessary for issues of a technical nature.

Staff resignation

According to Chinese media reports, Coinsuper was founded in 2017 by Chinese entrepreneur Zhang Zhenxin, who died in 2019. Karen Chen, who joined Coinsuper as CEO in early 2018 after serving as a senior executive at UBS Group AG, said in Interview She left the company in July 2019 due to personal reasons.

Chen said she remains a minority investor in the company as a result of the shares granted to her while she worked there, but she is not involved in its operations. Registration in the Companies Registry shows that she ceased being a director of Coinsuper in March 2020. Chen was listed as the largest individual shareholder of Coinsuper in the last annual report submitted to the Companies Registry in October. I last posted about Coinsuper on Twitter in November 2019.

The company completed its latest funding round in early 2019, according to a press release that did not disclose the amount raised.

A partner in a Coinsuper venture capital backer, who requested anonymity and his company, said it has written off almost his entire $1 million investment. About six to eight months ago, the company lost contact with Coinsuper management and Chen stopped responding to WeChat, the person said. Several employees left the company between July and December, according to Hong Kong companies’ registry data.

Pantera Capital, run by veteran Bitcoin investor Dan Morehead, did not respond to emails seeking comment. The company invested in Coinsuper in its Series A funding round for June 2018. Pantera still lists cryptocurrency exchanges among its investments.

In September last year, Coinsuper made its last major announcement, saying on Twitter that it was adding Solana token and Tether Stablecoin to the exchange. Her social media accounts have not been active since December 1.

(Updates showing that Chen’s ownership is the result of shares granted by the company)

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