Back in January 2019 Cryptopia was hacked for roughly $3.2 million. At the time the hack seemed really bad, and lots of users were saying that it was an exit scam. Cryptopia has never been reopened since then. However, over 90% of user’s funds are intact, worth over $100 million, and it doesn’t really make sense that Cryptopia closed considering that banks are allowed to run with a 10% fractional reserve or less. Ultimately, it seems the government of New Zealand forced Cryptopia to close for ulterior motives.
The hack could perhaps be considered a serious issue, although Cryptopia was adamant that they could recover the stolen funds from their profits if they kept running the exchange. Indeed, Cryptopia tried to reopen in March 2019, but it never happened.
It seems the real problems for Cryptopia started when they went to the police immediately after the hack occurred. Cryptopia did the right thing by going to the police rather than trying to hide the hack, but it seems ultimately Cryptopia was punished for doing so. The police investigation dragged on for month after month, and ultimately the government took away Cryptopia’s right to ever reopen the exchange.
This is absurd considering that the average bank in the United States runs on an extreme fractional reserve. Indeed, the Federal Reserve slashed the reserve requirement for banks in the United States to 0%, although in general the banking system has around 10% reserves.
This means that for every $1 million of user’s deposits at a bank in the United States, banks only have $100,000 of funds to back it up. Compare this to Cryptopia which has 90% of users’ funds after the hack.
Essentially, Cryptopia has far more reserves than an average bank, or any bank for that matter, yet the government has forced Cryptopia to close and liquidate.
It could be speculated that the government of New Zealand did not close Cryptopia for legitimate reasons, rather, the government was anti-crypto to begin with and took the opportunity to forcibly close New Zealand’s biggest crypto exchange.
Indeed, it is common sense that Cryptopia could have recovered the stolen $3.2 million from operating profits without any government assistance. If Cryptopia did that, then Cryptopia users would have gotten access to their funds over a year ago.
Instead, Cryptopia users are being forced to wait for a court controlled liquidation process. There are still no refunds in sight for Cryptopia users. Indeed, it has taken over a year for the court to decide that Cryptopia users deserve to receive their $100 million of funds back, rather than splitting up the $100 million among Cryptopia’s creditors.
Ultimately the real story in this situation is that Cryptopia was forced to close down by the government, even though Cryptopia could have kept running and recovered its losses in a timely manner. This has caused Cryptopia users to lose access to their funds for years. The winner in this situation seems to be the government. They got their wish of shutting down the biggest crypto exchange in New Zealand, and they now have control of $100 million of Cryptopia users’ funds.
This story should serve as a warning to future crypto exchanges who might find themselves in a similar situation. Apparently, it is not wise to be overly trusting of the police or the government during a crypto exchange hack. Indeed, the police and government did nothing to recover any stolen funds, all they have accomplished is destroying Cryptopia forever and ensuring that users will not get their funds back for many years, if ever.