A crypto exchange based in Hong Kong has ceased operation with immediate effect – almost three years after it suffered a devastating security breach.
Gatecoin hit headlines in May 2016 when 15 percent of the deposits it held were stolen from hot wallets by hackers. A total of 250 Bitcoin and 185,000 ETH were taken during the attack. Worth about $2m at the time, the haul would have fetched more than $25.2m at today’s rates.
The troubled exchange managed to relaunch three months later after securing at least $500,000 in investment – and attempted to woo users back on to its platform by offering a prolonged period of fee-free trading.
Problems were not far away from returning. In 2017, Gatecoin lost access to banking services without warning. At the time, the company’s head of marketing lamented the timing of the outage as customers were beginning to return to the exchange because the crypto price boom.
The issues which ultimately led to Gatecoin’s downfall this week can be traced back to issues with a payment service provider (PSP.) In a statement on its homepage – replacing the fuller website that was there before – it said this provider, described as a “fully regulated payment institution” in France, had almost paralyzed Gatecoin’s operation and caused substantial losses because it had failed to complete transfers in a timely fashion.
Gatecoin’s statement added:
“Even after we managed to mitigate our loss by replacing that PSP with more reliable alternatives to process our clients’ transfers in September 2018, the situation did not improve because that PSP retained a large part of our funds. After months spent trying to recover those funds, we commenced legal action against that PSP but were advised that it is unlikely that we would be able to recover the funds from them in full.
“In light of the circumstances, we have suffered financial difficulty over a period time to an extent that we are no longer able to support our operation.”
A winding-up order has now been granted against Gatecoin, with the company stressing that it plans to assist during the liquidation process so crypto assets are redistributed back to creditors as quickly as possible.
Another exchange fatality
All of this comes amid the continuing fallout surrounding the collapse of QuadrigaCX. Gerald Cotten, the Canadian exchange’s CEO, died suddenly from complications of Crohn’s disease in India, leaving the company unable to access the $140m in crypto that belongs to its 115,000 customers.
On Wednesday, Mr Cotten’s widow Jennifer Robertson claimed that, before his death, he had been using his own funds to settle customer transactions after a bank froze QuadrigaCX’s fiat holdings.
The drama isn’t ending here. Stewart McKelvey, the law firm hired by the embattled exchange, has said it cannot represent the company going forward because a conflict of interest has been identified by EY, the court-appointed auditor.
In recent weeks, it has emerged that six cold wallets apparently used by QuadrigaCX to store its clients’ funds were in fact emptied eight months before Mr Cotten’s death – further complicating efforts to recover the missing funds.
Although some progress has been made, EY has warned that only a fraction of the lost crypto has been retrieved to date.