Rumors are swirling in the online realm regarding the potential insolvency of prominent crypto exchange Huobi. We have dug into the situation to shed light on the origin of these claims and whether they are worth worrying about.
Unpacking the Huobi insolvency rumors
On Sunday, August 6, the crypto community was abuzz, when reports emerged alleging that Huobi, a large crypto exchange, was accused of insolvency.
Analyst Adam Cochran was one of the first to post the news. He linked a significant Tether sell-off by Binance to the Huobi's purported problems. According to Cochran, law enforcement officials were questioning executives from Huobi and representatives of the Tron crypto project.
Let's unravel the knot between Binance, Tether, Huobi, and Tron:
😏 Tron's founder is Justin Sun, a Chinese businessman. The crypto community believes that Huobi is under his control. As per Chinese journalist Colin Wu, Sun acquired a crypto exchange back in October 2022, a claim neither confirmed nor denied by Sun. On X (formerly Twitter), he positions himself as an advisor to a Huobi.
👬 Justin Sun is a friend of Changpeng Zhao, another famous Chinese businessman, who is the founder of the largest crypto exchange, Binance.
🥸 Journalists have accused Sun of centralized control over a substantial amount of Tether issued on the Tron blockchain (stUSDT). These accusations likely prompted the interrogation. Cochran wrote that Huobi began cutting stUSDT reserves dramatically in early July:
At the beginning of July, Huobi had more than 600 million Tether. Now this number accounts to less than 100 million.
According to Cochran’s assumptions, Sun may have provided the Binance insiders with stablecoin's issues, subsequently embarking on a stablecoin sell-off:
Same with Binance: at the start of July, the exchange had more than 600 million Tether, but now it is already less than 100 million.
At the same time, Changpeng Zhao critisized Tether in a Twitter Ask Me Anything (AMA) session at the end of July, calling the stablecoin a risky "black box".
Keep your cool
Justin Sun quickly responded to the rumors with a post, urging the crypto community to ignore the FUD (Fear, Uncertainty, and Doubt). A similar message was posted on the official Huobi website, reassuring users that there are no real reasons to worry about.
However, it turns out that the crypto community remains rather skeptical about claims that Huobi is unaffected and actually doing fine. The platform suffered a $500 million monthly outflow, with an additional $64 million vanishing between August 5 and 6, just after the news about Huobi’s insolvency spread online.
Huobi's assets began to decline in early August.
Adam Cochran fueled the fire by mentioning Huobi's reporting challenges. According to his calculations, users’ accounts boasted $631 million worth of assets. Yet, Cochran believes that the actual reserves are a mere $90 million. He speculates that Sun might have illegally diverted the rest to fund his other projects.
Members of the crypto community find irony in Justin Sun’s efforts to make people believe that everything is okay despite obvious withdrawals.
If Huobi files the bankruptcy plunge
Huobi is one of the major crypto exchanges, with daily trading volume on the spot market of $1.15 billion. In comparison, the largest exchange, Binance, shows $4.6 billion, while Coinbase — the first crypto exchange with stocks traded on the US market — has only $460 million.
Spot trading is a quick purchase with the immediate transfer of an asset to the buyer.
CoinMarketCap ranks Huobi as the fifth-biggest crypto exchange. A collapse of this magnitude would provoke an outflow of assets from the market, ruining the entire industry's reputation.
Huobi is on the list of crypto exchanges commanding the highest spot market trading volumes.
To understand the possible consequences of the Huobi’s insolvency, it is apt to revisit the FTX crypto exchange’s bankruptcy episode in November 2022. The collapse culminated in a slump of Bitcoin and then other cryptocurrencies to the cyclic lows.
Rectangle: Bitcoin's drop following the FTX collapse.
Huobi, much like FTX, holds a place among the crypto exchange titans. In the event the rumors are true, market reaction could precipitate another decline.
Should panic set in?
Rumors about potential downfall of one crypto platform or another often flow around the market. Every day, tons of frightening reports permeate the market, suggesting Binance, Bitcoin, and the whole crypto industry are on the brink. Yet, neither Binance nor Bitcoin, nor even the entire crypto realm, has experienced the catastrophic, terrible or unexpected scenarios these rumors propagate.
Tron and Justin Sun have been surrounded by scandals, intrigues, and investigations since their first day in the market (which was back in 2017, if you remember). Despite all the crises and accusations, both the project and its founder are still alive and well.
USDT remains the most capitalized stablecoin on the market, but it has also been repeatedly predicted to die.
Anyway, It is important to bear in mind that no project and no person is immune to pitfalls. There is no 100% secure project with data accessible for comprehensive analysis. Rumors often remain just that — rumors.
Itez can give probably the only correct advice — always do your own research and make investment decisions based on true facts, not speculative whispers.
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This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.