Rumors surfaced earlier this week that Bybit, one of the most popular cryptocurrency exchanges, was hacked and insolvent. Numerous memes that call back to the now defunct exchange FTX shared on X fueled the speculations.
The exchange’s Proof-of-Reserves shows that it holds more than 100% of user deposits, meaning it can readily fulfill withdrawal requests.
In response, Bybit CEO Ben Zhou denied insolvency claims. He stated that the accusations targeting the exchange lacked factual basis.
In a separate post, the Bybit CEO revealed that the rumors were all false and that users should be aware of them.
hearing some rumours about Bybit being insolvent or hacked and etc. Please note that we have updated our POR this month as well as you can view all Bybit wallet through Nansen (Total more than 11B) . None of the rumours that I have see so far have any real facts supporting it,…
— Ben Zhou (@benbybit) May 23, 2024
He also provided Bybit’s proof-of-reserves and a Nansen dashboard showing that their wallets held over $11 billion in assets, exceeding user deposits.
“None of the rumours that I have [seen] so far have any real facts supporting it, please be aware,” Zhou stated.
More FUD in The Market…
It’s noteworthy that the Nansen data isn’t a guaranteed representation of Bybit’s total assets or reserves, according to Nansen’s disclaimer.
The source of rumors remains unclear. According to a cryptocurrency member, a bug in a PoR graph from Arkham Intelligence might have sparked the rumors, as it showed that Bybit’s wallets were drained. However, independent verification showed funds were still there. At press time, there’s no comment from Arkham Intelligence.
The false rumors come a few weeks after the exchange announced its partnership with Ethena Labs, the team behind the decentralized stablecoin USDe. As part of the collaboration, Bybit will integrate USDe as a key liquid asset, alongside USDT and USDC, into the exchange, enabling users to make profits and unlock efficiency in capital use.
Apart from the speculations, Bybit has faced several legal warnings and regulatory actions in recent months:
Earlier this month, France’s financial regulator AMF renewed its warning against Bybit, stating the exchange is operating illegally in the country without proper registration as a digital asset service provider (DASP). The AMF urged French investors to prepare for potential service disruptions and hinted at possible legal action to block Bybit’s website.
In March, Hong Kong’s Securities and Futures Commission (SFC) also warned investors that Bybit is an unregistered crypto trading platform and flagged some of its products as suspicious investments.
In response to regulatory scrutiny, Bybit exited the Canadian and UK markets in 2023.
The AMF first blacklisted Bybit in May 2022 for non-compliance with French regulations. The regulator claimed that under French law, digital asset service providers must register with the AMF before operating.
Bybit representatives stated the company has been working closely with the AMF and is in the process of seeking a license. However, the AMF’s warning remains in place and Bybit’s legal problem in France is still unresolved.
FTX Collapse Still a “Trauma”
The fallout of FTX, once a prominent exchange, has eroded trust in the cryptocurrency industry as a whole. Customers have become wary of using other centralized exchanges, fearing similar outcomes.
The collapse of a prominent exchange can have ripple effects on the broader cryptocurrency market. It can lead to market instability, price fluctuations, and a loss of confidence among investors and traders.
That partly explains why when Binance, a major cryptocurrency exchange, and its CEO faced charges in November last year, several customers quickly moved their funds out of the exchange. As reported, the leading exchange saw around $1 billion in outflows at the time.
Unlike FTX, Binance had no problem with massive withdrawals. The exchange reportedly handled the issue easily and ensured that users’ funds were safe. The issue also helped Binance build trust among its users.
Insolvency cases in the cryptocurrency space can attract regulatory scrutiny and lead to increased oversight. This can impact the overall regulatory environment for cryptocurrencies and exchanges, potentially leading to stricter regulations.
Following the collapse of FTX and Terra, global authorities have ramped up efforts to establish legal frameworks for cryptocurrencies and stablecoins. Notably, the EU is expected to implement the MiCA regulations this year while the US inches closer to clearer guidance on cryptocurrencies.