In the latest salvo in the ongoing QuadrigaCX saga, the Bitcoin exchange platform says it has applied for creditor protection as it tries to solve lingering financial difficulties. This announcement comes as the platform says it no longer has access to its cold wallets which contain an unnamed but significant amount of customer funds.
Quadriga Files for Creditor Protection
In a statement published on the company’s website on Thursday (Jan. 31, 2019), the company says that it filed for creditor protection in the Nova Scotia Supreme Court. According to the announcement, QuadrigaCX says the move is in accordance with the Companies’ Creditors Arrangement Act (CCAA).
For QuadrigaCX, creditor protection will pave the way for it to examine its financial health in the wake of the recent crisis. As part of the application, the exchange platform wishes the Court to appoint Ernst and Young as a third-party overseer of its efforts to sort out financial issues currently plaguing the business.
A portion of the statement reads:
“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us. Unfortunately, these efforts have not been successful. Further updates will be issued after the hearing.”
More Trouble For Beleaguered Bitcoin Exchange Platform
The loss of the platform’s access to its cold wallets could potentially mean trouble for QuadrigaCX as it may not be able to fulfill its obligations to its customers. The news of this loss of access comes at a time when the cryptocurrency exchange is mourning the passing of its founder, Gerald Cotten.
Please see our statement regarding the sudden passing of our @QuadrigaCoinEx founder and CEO, Gerry Cotten. A visionary leader who transformed the lives of those around him, he will be greatly
— QuadrigaCX (@QuadrigaCoinEx) January 14, 2019
Back in November 2018, Blockonomi reported that QuadrigaCX lost ownership of more than $21 million in a legal tussle between the platform and the Canadian Imperial Bank of Commerce (CIBC). At the time, the CIBC had frozen the platform’s accounts, challenging the ownership of the funds.
The court eventually ruled in favor of QuadrigaCX with the platform getting a significant portion of frozen funds released. However, since that time, the Bitcoin exchange has been unable to secure a banking partnership for receiving customer deposits.
Before this present crisis, QuadrigaCX was the largest Bitcoin exchange in Canada based on daily trading volume. Back in 2017, the platform was part of the consortium of companies that stood against the proposed Bitcoin Unlimited hard fork.
The Dangers of Leaving Funds in Cryptocurrency Exchanges
With QuadrigaCX customers currently in limbo, the debate about the safety of cryptocurrencies stored in exchange platform takes center stage yet again. Usually, traders lose funds due to hacks or exit scams, but this time, the platform says it cannot access its cold storage (which is supposed to be safest storage option as far exchanges are concerned).
Earlier in January, a debate broke out on Twitter about the safest way to store Bitcoin and other cryptos. Kraken CEO, Jesse Powell weighing in on the issue at the time, advised traders not to store cryptocurrencies on exchange platforms. According to Powell, users would be better served to utilize hardware wallets like Trezor and Ledger.
PLEASE do not store more coins on an exchange (including @krakenfx) than you need to actively trade. Use @LedgerHQ or @Trezor. DEXes are not a panacea — look at The DAO. Open source just means exploits will be discovered sooner (probably not by good guys). ???? https://t.co/LmzhtCjpM0
— Jesse Powell (@jespow) January 16, 2019
During the debate, many commentators countered Binance CEO, Changpeng Zhao (‘CZ’) who said self-storage options are more trouble than they were worth. For CZ, traders should utilize “reputable” platforms or decentralized exchanges (DEX).
At the start of the month, foremost Bitcoin evangelist Trace Mayer held the first-ever Proof-of-Keys event during which traders were urged to withdraw all Bitcoin held with third-party exchanges. One of the main aims of the event was to demonstrate cryptocurrency ownership which has spawned the maxim “not your keys, not your Bitcoin.”