Korea’s largest crypto currency exchange Bithumb gets caught into a growing controversy that it has done a series of wash trading to purportedly inflate its trading volume.
The controversy comes on the heel of local vernacular news daily Chosun Biz’s report that Mr. Kim Byeong Gun, new owner of Bithumb, is facing liquidity crunch in raising big enough money to finalize the takeover bid.
Mr. Kim, chairman with BK Medical Group, won a takeover deal in November to acquire the vast majority of Bithumb shares (50% plus one share) for 400 billion won and established BTHMB as new holdings company for Bithumb Exchange.
He paid 11.2 billion won in an initial down payment, but hits the hurdle in raising the remaining money.
U.S.-based monthly magazine Forbes online edition on Dec. 19 quoted crypto-currency rating and analysis service company CER as alleging that 94% of all trades done on the Bithumb Exchange since summer of 2018 was manipulated.
The wash trading is a sort of trading volume manipulation scheme, under which ill-willed traders conspired with each other to simultaneously call ‘sell and buy’ orders at pre-fixed prices with no real transaction of crypto currencies nor real money transfer to artificially up trading volumes.
Yet, CER reported that its price and volume correlation analysis showed the wash trading had nothing to do with price ups and downs.
True enough, according to CER, Bithumb stayed down on the rankings of who’s who list of top 10 global exchanges in September, having around US$350 million in the daily trading volume. As of November 11, Bithumb’s daily trading volume culminated at US$4.4 billion, shooting up 12 times.
Today, Bithumb ranks as world’s No. 2 exchange with a daily trading volume of US$1.56 billion.
Bithumb strongly denied the CER allegations saying that the exchange had done nothing illegal to artificially manipulate up trading volumes.
Fund-raising scheme goes awry
Meanwhile, local online vernacular news media Chosun Biz reported on Dec 20, that Kim Byeong Gun, chairman of BK Medical Group, who underwrote the deal to acquire a 50% +1 share stake of Bithumb for 400 billion won, is confronting hurdles in sealing the deal, because his fund-raising plan went awry.
According to the report, Mr. Kim Byeong Gun had a fund-raising plan to raise about 200 billion won by issuing new coins on the exchange, but has gone nowhere because the price crash in the global crypto currency exchange market has been derailing the plan.
The 200 billion won is half what he has to pay for the 50% +1share stakes.
To make matters worse, his fund-raising plan involves his contract with one Hong Kong-based investment fund company called Kingsley, under which the Hong Kong company will invest US200 million (approximately 225 billion won ) in the Bithumb for 1.6 billion BXA coins plus a 20% stake in BK Global Partners Holdings.
BXA is a sort of crypto currency that is supposed to be circulated as digital assets across Bithumb-centric BXA ecosystem.
A short for Blockchain Exchange Alliance, BXA is a sort of Bithumb-led consortium of crypto currencies.
The contract also stipulates that the 20% stake in BK Global Partners Holdings amounts to 2% share in BTHMB, the new holdings company of Bithumb Exchange.
Yet, the contract was nullified because Kingsley has failed to meet the Dec 10 deadline to inject the 200 billion won into the exchange until Dec. 10, 2018.
Kinsley's plan was to sell 1.6 billion BXA crypto currencies across the globe to raise the money, but it proved huge failures, as downward spirals in the crypto-currency prices across the world have discouraged prospective investors from pouring money into cryptocurrencies.
As the contract turned out to be null and void, BXA telegram officially declared Kinsley as one of fraudsters who have fraudulently claimed to sell BXA coins.
At issue is now who and how to redeem the money, which prospective investors and dealers had paid, or deposited in advance to buy BXT coins. It also remains to be seen how chairman Kim will raise money to complete the takeover deal.