Friday, August 3, 2018

Massive Losses in Hong Kong as Bitcoin Whale's Bad Trade Leaves Counterparties Holding the Bag



Bloomberg reports that a  massive wrong-way bet on Bitcoin left an unidentified futures trader unable to cover their losses, burning counterparties and threatening to dent confidence in one of the world’s largest cryptocurrency venues.

The long position in Bitcoin futures listed on OKEx, a Hong Kong-based exchange, had a notional value of about $416 million, according to an OKEx statement on Friday and data compiled by Bloomberg. While OKEx moved to liquidate the position on Tuesday, the exchange was unable to cover the trader’s shortfall as Bitcoin’s price slumped. Because OKEx has a “socialized clawback” policy for such instances, it will force futures traders with unrealized gains this week to give up about 18 percent of their profits, Bloomberg adds..

While clawbacks are not unprecedented at OKEx, the size of this week’s trading debacle has attracted lots of attention in crypto circles.

The exchange, which only identified the problem trader by the ID number 2051247, said the position was initiated at 2 a.m. Hong Kong time on July 31.

“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.”

The exchange said it injected 2,500 Bitcoins -- worth about $18 million at current prices -- into an insurance fund to help minimize the impact on clients.

-RW  

(ht M)