Crypto Biz: Ledger shuts down recovery service, Web3 in Hong Kong, and another CEX goes down

Another centralized exchange (CEX) bites the dust, with Hotbit announcing it will close its operations due to adverse business conditions. As usual with CEX collapses in recent months, the crypto firm cited FTX, the ongoing crisis in the banking system and even a probe as reasons for its cash flow problems.

Wallet provider Ledger is also struggling. The company decided to postpone its controversial recovery service due to community backlash. Security reputation is critical for a crypto wallet provider, but Ledger’s dilemma may go beyond a PR crisis. The recovery service was also a path to subscription services, which could generate recurring revenue for the wallet provider. The feature is now being delayed until most of the code is open source, Ledger said.

In challenging times there are also opportunities for others. Honk Kong is accelerating its plans to become a crypto hub, with more than 150 crypto companies awaiting approval to operate as virtual asset trading platforms in the city.

This week’s Crypto Biz examines the shutdown of Hotbit, the licensing of crypto companies in Hong Kong, Ripple’s acquisition of Bitstamp, and the Ledger brand crisis.

Hotbit exchange halts operations, urges users to withdraw funds

Crypto exchange Hotbit is winding down operations and urging users to withdraw funds before June 21. Hotbit’s operations have deteriorated since an investigation into a former team member took place in August 2022, according to an announcement. Authorities believe a former management employee was involved in a project that violated criminal law. The probe forced the exchange to halt business for weeks. Hotbit’s cash flow was also impacted by the collapse of the FTX and the banking crisis — incidents that resulted in continued outflows of funds from centralized exchanges, the company said. The announcement was followed by phishing links posing as the official Hotbit website on Google.

Ledger key recovery service paused amid backlash, will open-source code

Ledger’s public relations nightmare took a new turn this week, leading the company to pause its recovery service tool amid ongoing community backlash. Unveiled on May 16, the Ledger Recover feature allows users who have lost their private seed phrase to get it back through an optional feature. Earlier this week, Ledger CEO Pascal Gauthier confirmed that private seed sentences from users using the service could theoretically be turned over to governments if subpoenaed. In response to concerns, the company is accelerating efforts to open source most of its codebase, including core components of its operating system and Ledger Recover, which is being delayed until after this process is complete.

Ledger Recover is launched as soon as the source code is verifiable. We believe in these amendments to the project and will continue to build the industry together.

— Pascal Gauthier @Ledger (@_pgauthier) May 23, 2023

Hong Kong opens crypto exchange access to retail users, but there’s a catch

Hong Kong has taken another step towards building its reputation as a crypto hub. Earlier this week, the Securities and Futures Commission announced that virtual asset trading platforms will soon be licensed to serve retail investors. Compliance guidelines include security requirements for asset custody, cybersecurity standards, and segregation of client assets. Further measures to protect investors may include enhanced token due diligence and regular disclosures. The legal framework was approved by local lawmakers in December 2022, to give cryptocurrency exchanges the same market recognition as traditional financial institutions. Providing regulatory clarity for crypto businesses is part of Hong Kong’s strategy to attract businesses and position itself as a Web3 city.

Ripple acquires Pantera’s stake in Bitstamp

Digital payment network Ripple took a minority stake in the crypto exchange Bitstamp in the first quarter of 2023. Galaxy Digital advised on the deal, according to a transcript of Galaxy’s shareholder conference on May 9. Ripple acquired shares previously owned by Pantera Capital, a US-based digital asset investment company. It is unclear how much Ripple paid for the acquisition or how the deal was structured. Founded in 2011, Bitstamp was one of the first crypto exchanges to offer digital asset transactions. The company is based in Luxembourg and serves customers in more than 100 countries.

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