Unravelling The Mystery: Report Shows FCoin’s $130M Insolvency Started From Its Early Days

Using centralized cryptocurrency trading platforms and custodians comes with a certain amount of risk as investors rely on the expertise of the exchange’s management team. Over the past eleven years since the creation of Bitcoin, there have been many reports of crypto exchanges that have either gone bankrupt or pulled an exit scam, leaving traders in despair and full of regrets. The most recent is the case of the FCoin Exchange.

FCoin Announces Insolvency

Perhaps, a project stepping out to say that it cannot refund users their money is one of the most heartbreaking moments for investors in the crypto space. And that was the news the community received from FCoin earlier this week. 

FCoin is a cryptocurrency exchange that branded itself as the “first global autonomous digital asset trading platform and autonomous organization for the future community.” Sadly, barely two years after it launched, FCoin’s founder, Zhang Jian, announced on February 17, 2020, that the exchange has become insolvent and unable to pay users an estimated 13,000 BTC ($130 million).

This is coming from an exchange that was reported to have made up to 95% profit within the first few months of operations, with the CEO even claiming it was over 100 times. So the question many have been asking is, “how did FCoin go bankrupt, and what will happen to investors’ losses?”

FCoin’s $130M Doom Started From Its Peak Period

While no one can tell what comes next for affected investors, a new report from PeckShield, an on-chain analysis, and security startup, shows that the FCoin’s downfall was a slow and cruel one, which started after the exchange hit its peak just two months after it became operational. FCoin exchange was launched in May 2018. 

The security firm performed a comprehensive traceability tracking and asset flow analysis on all of FCoin’s BTC 33,938 wallet addresses, including cold wallets, hot wallets, user wallets, etc., to track the movement of funds from the wallets. 

According to PeckShield’s report, FCoin exchange saw its highest Bitcoin balance on July 19, 2018, with a total of 13,272 BTC. However, this milestone was followed by a massive outflow of 10,000 BTC within 40 days, an event that PeckShield described as “paradoxical.” As of August 31, 2018, FCoin’s BTC balance was just 3,759 BTC. While it is unclear what happened to the assets, the decline occurred during the period the exchange had data decision errors, as per to Jian’s announcement. 

After the sudden crash, FCoin’s Bitcoin balance started rising again until it reached a total of 7,324 BTC in November 2018. Unfortunately, that was as high as the balance could get before it began to decline gradually, leaving about 477 BTC as the current balance. 

Where Did The Funds Go? 

PeckShield’s report suggests that FCoin’s cold wallet starting with 12rU7w sent a total of 8,009 BTC and 11,107 BTC to 19xHiA and 1PFtrR respectively in multiple transactions. The transfers were made from June 13, 2018, to February 17, 2020, with each transaction carrying between 200 to 900 BTC. 

After receiving the funds, 19xHiA and 1PFtrR further transferred the BTC in 100s, 150s or 200s, to different cryptocurrency exchanges, including “Huobi, OKEx, Coinbase, Bitfinex, Binance, Bitstamp, Gate.io, Bibox, Renrenbit and so on.” Huobi received the highest amount with a total of 1472 BTC. 

According to PeckShield, these are only an estimate of the amount that went into exchanges. “The actual amount of BTC transferred from the cold wallet address starting with 12rU7wh far exceeds these,” the security startup said in the report. 

What Will Happen To Affected Investors?

It is clear that this is the end of FCoin, and the exchange’s insolvency was not caused by hacks, like in the case of MT Gox and Cryptopia. The founder claimed that the data error, which started in 2018, was mainly responsible for FCoin’s ignoble end. 

While there is currently no well laid out plan on how investors will get their money, Jian, in his announcement on Reddit, said that he would use the profits from his projects to compensate users of their losses, and this may take up to three years. 

“I have decided to switch tracks and start again, hoping to get up again as soon as possible and use my new project profits to compensate everyone for their losses. I will disclose any important progress of the new project through public channels.

Once the new project is on track, I will begin the long-term mail withdrawal process, which may take 1-3 years. In addition, for the other losses of FT and FMEX investors, I am also willing to use the profit of the new project to compensate. The specific calculation method will be discussed with you at the beginning of the compensation,” he said.