Second Turkish Bitcoin Exchange Abruptly Shuts Down, Locking Up Funds

Vebitcoin, a Turkish cryptocurrency exchange, today abruptly halted trading, citing unspecified financial difficulties.

“Due to the recent interest in crypto, our transactions have become much more intense than expected,” a statement on Vebitcoin’s website said. “We regret that this situation has put us in a financially difficult position.” The exchange said it halted trading to be able to “honor the claimants’ rights,” adding that more information will follow shortly.

That makes Vebitcoin the second Turkish exchange this week to shut its doors after Thodex halted trading on Wednesday, first citing an outside investment and later cyberattacks.

Vebitcoin is one of the smaller exchanges in the country. Its daily trade volume was $60 million yesterday. By comparison, Thodex’s daily trade volume was $585.5 million on its last day of trading. Paribu, one of the country’s largest exchanges, today recorded a trade volume of $1 billion.

Bitcoin trades accounted for 56% of Vebitcoin’s daily volume yesterday, followed by 10% for XRP and 6% for Stellar. The amount of funds locked up on the exchange isn’t yet known.

Shortly after the announcement, Turkish financial crimes watchdog MASAK froze all bank accounts in the country associated with Vebitcoin and opened an investigation into the company and its managers. Mertcan Bayraktar, a lawyer who represents seven people in a case against the other exchange, Thodex, told Decrypt that freezing bank accounts is the necessary first step to protect the company’s claimants—those who file a legal complaint in court. “This has been a tragic week for Turkish crypto,” he added.

BitGo insurance?

There are 31 crypto exchanges in Turkey, including Thodex and Vebitcoin. To win customers, it helps to tout a global brand as your partner—even if not accurate.

Vebitcoin described itself on the company website as the “Turkey partner” of BitGo, the California-based digital asset security company BitGo. "All products on our stock exchange, which is a Bitgo partner, are covered by insurance," it noted.

A tweet from 4 June 2020 said, “Vebitcoin is the Turkish partner of BitGo, the world's most important cold storage cryptocurrency bank”

But in a call with Decrypt, a spokesperson for BitGo clarified that Vebitcoin has only been its hot wallet client—not a cold wallet client—and certainly not its partner. “Did Vebitcoin overstate its relationship with us? Possibly,” the spokesperson said, adding that the company wasn’t aware of its client’s portrayal of their relationship.

Nonetheless, popular Turkish crypto sites have played up Vebitcoin’s relationship with BitGo. Coinbalina, a popular Turkish crypto site, wrote in August 2019 that “crypto funds on Vetbitcoin are insured up to $100 million as it has a partnership with BitGo, the blockchain security company that offers the most extensive insurance coverage through Lloyd’s of London.” Another popular site, Uzmancoin, said in September 2020 that “all products and assets on Vebitcoin exchange are insured through its partnership with BitGo.”

BitGo's insurance covers only a loss caused by BitGo and has nothing to do with Vebitcoin’s trading, BitGo’s spokesperson told Decrypt. The insurance doesn’t cover a loss caused by Vebitcoin.

Vebitcoin’s Turkish customers shouldn’t be expecting any payout from California.