Upbit’s “Investigation” Has Nothing to Do with Fraud, Everything to Do with Pooled Liquidity

As is usually the case when the cryptocurrency markets are taking a beating, people want to know what is driving this bearish pressure. It appears the South Korean media has misreported an ‘incident’ involving popular domestic exchange Upbit. While there is an irregularity being investigated, it seems this is mainly based on a big misunderstanding. There is no fraud to speak of until proven otherwise.

What is Going on With Upbit?

Various South Korean news outlets have been reporting that domestic cryptocurrency exchange Upbit is under investigation by the authorities. Considering that South Korea is a big part of the cryptocurrency industry these days, such reports can easily trigger a massive sell-off of Bitcoin and altcoins. That is essentially what happened the other night, although the reasons for this particular investigation are not what people may think.

More specifically, South Korean news outlets are claiming Upbit is under investigation for fraudulent behavior. There are supposedly some anomalies when it comes to the platform’s trading volume and liquidity. This is 100% correct, although those anomalies are not the result of fraudulent behavior by any means. Instead, it seems there is a major misunderstanding on the part of the media as to how shared liquidity works.

To put this into its proper perspective, Upbit is sharing liquidity for a lot of cryptocurrencies with other exchanges. This is not uncommon in the world of cryptocurrency, as pooling resources maximizes liquidity for all trading platforms involved. To the untrained eye, it may seem as if something is amiss when looking at one exchange individually, although this shouldn’t be labeled as fraud.

Indeed, the investigation is seemingly focusing on this pooled liquidity issue first and foremost. Since regulators aim to acquire a better understanding of how this works, it is only normal that they decided to investigate what Upbit is doing exactly. Unfortunately, this whole ordeal has been blown out of proportion by the media, which resulted in a massive cryptocurrency sell-off for no real reason.

This would also explain why Upbit was still trading cryptocurrencies without any problems yesterday. If there were indeed fraudulent activity going on, the firm would have been forced to suspend all services almost immediately. So far, that has not happened, as the platform is still generating a high amount of trading volume for most supported currencies. It seems likely this trend will continue for some time.

At the end of the day, this is another issue blown out of proportion by the media due to a lack of understanding, though one would expect most cryptocurrency speculators and enthusiasts to have smartened up by now. Sadly, that has not been the case, as panic kicked in quite heavily over the course of a few hours. With the markets attempting to mount a small comeback, positive things will happen sooner or later. For now, there is no fraudulent activity where Upbit is concerned, until proven otherwise.