Cybercrime investigator claims HitBTC to be an insolvent scam operation

Richard Sanders, one of the lead investigators at CipherBlade, said that the crypto exchange HitBTC is the “largest-scale criminally fraudulent entity” in the industry. He claims that the exchange is a “wolf in sheep’s clothing.” The firm’s portrayal as “the most advanced” exchange in the market with high levels of security and liquidity may be a facade. Sanders added that HitBTC is insolvent and designed in a way that lets them selectively scam their users.

The exchange has previously been accused of faking its trading volume several times. 2019’s Bitwise report on exchange volume stated that it is “easy to show that HitBTC volume is almost entirely fake.” Bitwise used the same volume analysis techniques and order book that it applied to other exchanges. The research showed that HitBTC displayed the same abnormalities that are seen in Huobi and OKEx, which led Bitwise to conclude that all of these exchanges had vast amounts of fake volume built on small real user bases. While OKEx acknowledged the problem openly and Huobi seemingly altered its tactics to prevent detection, HitBTC responded by “bending with the wind.”

An official response from HitBTC stated:

HitBTC has managed to attract many institutional participants contributing to institutional (read mass) adoption and market efficiency. This, in turn, has resulted in different order size – order frequency relationship. To many lacking sophistication and financial literacy, this does seem like an anomaly that these gifted individuals attempt to portray as manipulative trading practices while in fact, this does represent solely the client profile. Note that our overnight volumes are consistent with the day-trade pattern: unlike humans placing round digit orders and having to eat and sleep, machines don’t sleep and react consistently on emerging market patterns.

HitBTC attributed its lack of human trading patterns to the dominance of algorithmic traders. Bitwise compared volume patterns during high volatility events, which showed that exchanges with wash trading tended to show more uniform volume. Among all its close competitors, HitBTC’s traffic figures are the lowest, clocking in at 1.27 million for $550 million in volume. With a reported volume of $15 million, Bittrex has twice as many views. 

In terms of volume per view, Binance.US is presently among the most prolific exchanges. With a monthly traffic of just 330,000, or 11,000 per day, it holds almost $6 million in daily trading — $545 per daily view. HitBTC’s average is $12,921. This is without taking into consideration HitBTC’s higher bounce rate. Following the Bitwise report, many companies have conducted third-party audits to regain investors' trust. Sanders mentioned Kraken and Bitbuy as examples for conducting proof-of-reserve and security audits. HitBTC, however, has not conducted audits of any kind while the team remains anonymous - yet another reason for suspicion. 

One of the reasons for the vast discrepancy in how crypto tracking sites rank exchanges is the lack of scrutiny. Currently, on CoinGecko’s rankings, HitBTC ranks 18 by trust score, while it is placed first on CoinMarketCap (based on liquidity). According to Sanders, there are many ways to evaluate the solvency of exchanges when no actual audit exists. He suggested an analysis through a comparison between wallet balances and hot and cold wallets.

Sanders said:

A quick peek at their Ethereum wallets and noticed a disproportionate amount of interaction with the WETH smart contract — a disproportionate amount that tells me, without even comparing trading volumes, based on my extensive experience on cases of this nature, it’s pretty likely HitBTC staff have and are day-trading customer funds — poorly.

In the previous Proof of Keys (an event where investors move their cryptocurrencies off exchanges to stress-test their reserves), HitBTC struggled to confirm customer withdrawals and demonstrated “minimal balance relative to volume.” Sanders noted that HitBTC’s Reddit is riddled with complaints of frozen and fraud assets. For the past seven months, it also seems to have been “under maintenance”, with no posts. Several allegations have since emerged elsewhere on Reddit. Seemingly, only the ones that received prominent community or media coverage were solved. 

Sanders added:

Take for instance this story, where an ‘AML case’ had sat for five months and was quickly remedied after the said case was described at a conference. When it will impact HitBTC’s ‘bottom line,’ HitBTC will ‘resolve’ the issue.

This kind of selective scamming leads Sanders to believe that the platform is “robbing Peter to pay Paul.” According to him, HitBTC is still operating because the losses that customers have suffered over the years are too small to be viable for lawsuits. Upon Crypto Briefing requesting for a comment on these allegations, HitBTC referred to their earlier responses regarding AML checks.