Huobi Exchange At Risk of Potential Bank Run, Analyst Warns

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Renowned analyst Willy Woo raises alarm bells, suggesting that Huobi, a major cryptocurrency exchange, could be on the brink of a bank run. The exchange’s low level of Bitcoin collateral has caught the attention of industry experts, raising concerns about its financial stability and sparking fears of a potential crisis.

Bitcoin Collateral Risk: A Red Flag

In a recent tweet, Willy Woo’s monitoring systems detected a significant risk level for Huobi’s Bitcoin collateral, indicating that the exchange may have inadequate reserves to cover its obligations. This finding serves as a warning sign for potential investors and traders.

A chart shared by Woo reveals a worrisome trend of declining Bitcoin reserves at Huobi. The exchange witnessed a notable drop in reserves on May 25, followed by a sharp decline on July 7. These significant reductions raise questions about the exchange’s ability to maintain a healthy reserve.

Comparing the alarming data, analyst highlights a staggering loss of nearly 94% in Huobi’s BTC reserves. In just one year, the exchange’s Bitcoin holdings have decreased from 220,000 BTC to a mere 26,000 BTC. Such substantial losses signify a troubling situation for Huobi and its customers.

Ethereum and USDT Balances Follow Suit

The decline is not limited to Bitcoin alone. Woo notes that Huobi’s Ethereum and USDT balances have also been on a downward trajectory. The decreasing reserves of these prominent cryptocurrencies exacerbate concerns surrounding the exchange’s financial health and liquidity.

Notably, Huobi’s struggles with compliance have resulted in its forced exit from several jurisdictions, diminishing its global presence. Woo highlights a decline in web traffic inflow, indicating reduced user activity. Currently, the exchange primarily caters to customers from India, South Korea, Mexico, Russia, and other third-world countries.

A Harsh Reminder: FTX’s Past Bank Run

While recalling the past, Woo reminds us of the bank run experienced by the FTX platform and its CEO, Sam Bankman-Fried. The incident, which unfolded in early November last year, had far-reaching consequences, leading to a significant downturn in Bitcoin and other cryptocurrency prices. FTX is now contemplating a restart to recover from the aftermath.

As the specter of a potential bank run looms over Huobi, investors and industry experts remain cautious, closely monitoring the situation. The ramifications of such an event would extend beyond the exchange itself, potentially impacting the broader cryptocurrency market. The unfolding events at Huobi demand careful attention as the situation develops.