A major bitcoin exchange with a strong presence in Japan, Quoine, is being sued for reversing bitcoin-ether trades after it allegedly suffered from a system glitch. Cryptocurrency trades on the platform are supposed to be irreversible, so the plaintiff claims Quoine acted fraudulently and seeks the return of 3,085 bitcoins.
Quoine Sued for Reversing Trades
One of Asia’s largest bitcoin exchanges, the Singapore-based Quoine, is reportedly being sued over the reversal of bitcoin-ether trades. This lawsuit is the country’s first bitcoin-specific legal dispute, according to The Straits Times on Monday.
The plaintiff is a market marker known as B2C2, who placed sell orders on Quoine’s platform at the rate of 10 bitcoins for one ETH on April 19, when the market price of one ETH was about 0.04 bitcoin. The orders were filled and credited on the same day; B2C2 paid 309.2518 ETH and received 3092.517116 bitcoins. However, the next day Quoine reversed the trades and deducted 3084.78582325 bitcoins from the market maker’s account without authorization, the news outlet detailed.
The trades were “inadvertently” executed at the “abnormal rate of… 10 bitcoins for one ethereum, which was approximately 125 times higher than the actual market price of ethereum on April 19,” the exchange admitted. Quoine attributed the cause to a technical glitch which occurred when it was “reconfiguring passwords for its critical systems to fend off persistent attempts by hackers to break into its systems,” adding that:
The glitch severely disrupted Quoine’s ability to retrieve actual market prices for bitcoin and ethereum.
Was the Reversal Fraudulent?
B2C2 claims Quoine “acted fraudulently” because their trading agreement states that orders are irreversible once filled.
In contrast, the exchange claims that it was entitled to do so because the trades were “mostly trades with huge mark-up over fair global market price.” In addition, it revealed that B2C2 had done other bitcoin and ether-related trades on its platform at prevailing market rates between April 15 and 18. Quoine asserted that B2C2, as a “sophisticated” investor, should have suspected that the “abnormal rate” was a mistake, adding that the market maker was “being opportunistic and seeking to profit from a technical glitch.”
The plaintiff is seeking to recover 3084.78582325 bitcoins from Quoine in Singapore’s High Court; no dollar amount was provided in the lawsuit, according to The Straits Times. The price of one bitcoin has more than doubled by the end of July from its April 19 price of $1,221.
Should Exchanges Reverse Trades?
Other bitcoin exchanges have also had to decide on trade reversals. In December 2015, Gemini was heavily criticized for reversing a trade after a customer placed a very large buy order on its platform in error. The exchange stated that its decision was due to the trade being “empirically disruptive to an orderly market.”
Last month, Coinbase came under fire from its users for not reversing trades during the Ethereum flash crash, which caused the price of ETH to fall from around $320 all the way down to 10 cents on its GDAX platform. One investor placed a multi-million dollar ETH sell order, sinking its price and triggering “approximately 800 stop loss orders and margin funding liquidations,” GDAX explained. However, two days later, the exchange announced that it would honor all executed buy orders as well as credit customers who had margin calls or stop loss orders executed using company funds.
Do you think Quoine should have reversed the trades? Let us know in the comments section below.
Images courtesy of Shutterstock, Quoine, Coinbase, and Bitcoin.com
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