After a brief history of incompetence, Hong Kong crypto exchange Gatecoin is closing down. The shutdown is the result of an (unnamed) court order, and Gatecoin has been instructed to liquidate its remaining assets. Unfortunately, these assets are significantly less than the deposits made by their customers. Late last year, many of these user funds were lost in a payment processor dispute, and they’ve been deemed unrecoverable by Gatecoin.
It’s unclear if selling their remaining assets will be enough to pay customers back, or even what those remaining assets might be. Gatecoin has been scarce on details, but the ruined exchange has apparently been put into the hands of regulators who will oversee the process.
You may not have used or heard of Gatecoin before, but if you did, you’d likely wonder how a cryptocurrency exchange could go so wrong so quickly. Here’s how Gatecoin joined the ranks of Cryptopia and QuadrigaCX in showing the world just how dysfunctional crypto exchanges can be.
The history of Gatecoin
Gatecoin suffered a major hacking attack in 2016 and never managed to recover. Image: Sergey Nivens/Shutterstock.com
Gatecoin is actually an older exchange than most. Founded all the way back in 2013 (long before Binance exchange and the newer wave of decentralised exchanges), Gatecoin was one of the first world exchanges to list Ether (ETH) for sale on its site. However, as major milestones go, this is the last bit of good news in the Gatecoin story.
Gatecoin was victim to a major attack in May 2016, when a hacker gained access to user hot wallets and made off with more than £1.5 million in user assets. It’s important to note that at this time, before the major bull run of 2017, crypto prices were much lower, meaning that a £1.5-million theft represented a far larger quantity of cryptocurrency than it would today.
The company never fully recovered from the hack, and the funds were never returned. Following this, China was soon to ban domestic initial coin offerings (ICOs) and fiat-crypto transactions. Gatecoin was forced to look for a new home in Japan and Hong Kong, but the major influx of other crypto business refugees saw Gatecoin shut out by notable fintech service providers. Those that would do business with Gatecoin often imposed strict limits on daily transaction volume.
Gatecoin was forced to take up with a heretofore unnamed Payment Services Provider, who in some shape or form took cryptocurrency balances but never returned them. After a protracted legal battle (again, not public record) in late 2018, Gatecoin came to grips with the fact that the money would never be returned. Legal action put them at the mercy of regulators, and that brings us to today’s liquidation.
We have only Gatecoin’s account of this process. The exchange may be more or less at fault, though clearly they dealt with unqualified service providers without doing due diligence. Gatecoin is just another in a series of incompetent (and possibly dishonest) exchanges that have gone belly-up in the past year. Though we’re glad to be rid of incompetent crypto service providers, we’re certainly sorry for the users who lost their funds in the extended debacle.
Featured image: Piotr Swat/Shutterstock.com