Recent liquidation issues with one of Bitcoin future’s providers OKEx is now in a rather tight spot with regard to its own future. The firm over the last couple of weeks caused a bitcoin (BTCUSD) market overhang of the tune of $460 million dollars.
Along with having to compensate for the market overhang because of this event, the exchange will also have to take into account and prepare for a massive loss in reputation amongst the community, which is already underway.
What Happened?
Last week, the traders and OKEx community members followed a digital trail of a trader that had established a $460 million dollar long position on Bitcoin futures. And the exchange only filled $40 million of the liquidation.
The number of Bitcoin’s that went unfilled is almost 950 and still waiting to be bought. Now the issue here is that by the last week’s end the company had to draft a plan to compensate for this long position. And this their insurance does not cover this gigantic amount.
This means that a void of $460 million dollars went unfilled, creating an overhang on the market that essentially bitcoin future traders will now have to pool in more than 50% of their individual profits to fill. The liquidation long position taken on the OKEx platform is probably one of the largest liquidation and will go down in cryptocurrency history as the same.
Officials from the platform did speak to persons that reached out on behalf of the press and media and said that they formed a united front saying that they are aware of the happenings of last week and the potential risk of the large overhang and refused to say anything about their plan of action as they were still in contemplation over it.
Subsequently, in a written statement released on their website, the company said that they are and have been working towards implementing societal risk management techniques and in all possibility the same will be employed in this case.
What is Going to Happen?
With the platform’s insurance policy pretty much unappliable in this situation because of the large amount, the happenings from here on are OKEx’s prerogative. With the huge amount of dissent and bad faith that the company has gathered because of this long position that can potentially crash the market, time is of the essence.
Bitcoin futures is a way to allow people to benefit from the cryptocurrency without having to actually buy them essentially making the best of both worlds with little to no risk. In the statement that OKEx released and subsequent addressals of the media and press, there have been multiple hints from the platform’s officials and executives that they plan on employing the societal risk management mechanism. Which basically means that any Bitcoin Future account that saw profits during this time will have to pay 50% or more of their profit share to fix this market overhang.
The platform’s insurance will not cover this failure of the OKEx platform because the number of bitcoins involved is quite high. In order to tackle this, in a step that just may be too little too late, the platform has expressed intent to inject 2500 BTCs from its own capital into an insurance fund so that they can handle these situations with a little more back-up.
OKEx’s Statement
On the 31st of July, OKEx released a written statement on their website’s support page about the happenings of the liquidation and chalked out a pretty clear plan of how they planned to deal with what has happened.
The written statement hints, multiple times, that the large forced-liquidation may essentially force the hand of the platform into triggering its societal risk management system, which not many users and traders are particularly pleased with. However, in the statement itself the company has expressed their plans to correct their fault by injecting their own capital into a insurance trust fund of sorts, but it may be too late for the issue at hand.
Read the entire statement here; https://support.okex.com/hc/en-us/articles/360011941512-Regarding-the-Forced-Liquidation-Incident-on-Jul-31-2018
Speculation
As there is with anything in the cryptocurrency market, there is a lot of speculation surrounding the everyday happenings. And in the case of the market overhang caused on the part of OKEx the community is responding no differently.
With the case of the OKEx platform involving Bitcoin Future trading, a lot of people are suggesting that this case will lead to the ceasing of such trading. This however is not the case. It is important to remember that, right now only OKEx’s future options and their ability to provide this service in the future is under the scanner. The sheer amount of the overhang has captured the attention of a large part of the community and has caused speculation and rumours of its own.
But it is important to remember here not to give any heed to the rumours that are making the rounds because this is an isolated issue on a platform that does not hold enough trading volume to crash the entire market. And this incident, though it does on the platform, does not reflect on the Bitcoin Futures issued by other authorities. As with any problem in the cryptocurrency industry, it is imperative that the community not give into speculation and rumours as it will just lead to further loss.
Also, read: My Top 15 Altcoins Picks for (Aug-Dec) – Spreadsheet
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