An unorthodox move by one of the world’s biggest cryptocurrency platforms to change the terms on $135 million of derivative contracts has infuriated traders and saddled some of them with losses, underscoring the risks of using unregulated virtual currency exchanges.
The episode at Hong Kong-based OKEx, which claims to handle more than $1 billion of crypto trades daily, involved futures on Bitcoin Cash, the virtual currency that split into two last week. In a decision that traders described as unusual if not unprecedented, OKEx forced the early settlement of its Bitcoin Cash contracts without warning on Nov. 14, just as prices were tumbling.
The move blindsided traders including Qiao Changhe, who said his fund lost $700,000 because its hedging position on OKEx was abruptly closed at a level that didn’t reflect prevailing market prices.
Qiao, a former energy futures trader who now runs Cayman Islands-registered Consensus Technologies, said he would reduce his $5 million fund’s use of OKEx because of the way it handled the Bitcoin Cash settlement. Four other traders who asked not to be named discussing private information also said they would scale back or end their relationships with the exchange. One of them filed a complaint with Hong Kong’s Securities and Futures Commission. An SFC spokesman declined to comment.
“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 said the decision was taken to protect customers from the volatility associated with the Bitcoin Cash split.
The exchange said it acted without notifying clients to reduce the risk of market manipulation. “After considering various scenarios, we decided that an early settlement was the most fair and rational decision to maintain an orderly market,” Andy Cheung, head of operations at OKEx, said in a response to questions from Bloomberg.
Crypto traders who spoke with Bloomberg said OKEx was the only exchange they knew of that forced early settlement of Bitcoin Cash contracts.