Another Bitcoin Flash Crash Imminent? Second Major Exchange Follows MtGox In Suspending Withdrawals

Tyler Durden's picture




 

Bitcoin plunged another 15% or so from its bounce highs this morning as volatility has picked up dramatically in the virtual currency. The reasons are numerous: JPMorgan has come out with a scathing attack - "bitcoin looks like an innovation worth limiting exposure to;" CoinDesk reports that major exchanges are under a "massive and concerted attack" by a bot system - creating a "fog of confusion" over the system; and perhaps most critically, BitStamp has followed Mt.Gox and halted withdrawals "due to inconsistent results from their bitcoin wallet" - due to the DDoS attacks...

 

 

Basically the main reason why BTC crashed in the past few days was the realization that MtGox had finally halted withdrawals, leading to an escalating blame game in which the finger pointing between the exchanges and the actual bitcoin source code (here and here) meant that something is wrong within the system. This lead to the previously noted flash crash in Bitcoin yesterday:

Alas, that may have been just the beginning when a few hours later, we just learned that the next major Bitcoin exchange, Bitstamp, has just halted Bitcoin withdrwawls, blaming a major DDoS for the suspension.

First, here is JPM's latest hit piece:

Unlike other asset markets, FX rarely welcomes newcomers for the simple reason that launching a widely-used currency traditionally required creating a sovereign or supra-sovereign entity with a central bank to issue the unit and manage its supply over time.

Hence the audacity of bitcoin: it is a stateless, virtual and peer-to-peer currency, so exists only digitally and is associated with no sovereign, central bank or bank payments system. It is also incredibly illiquid extremely volatile and often caricatured.

After a brief Economics 101 refresher on the required functions of money, this research note addresses various frequently-asked questions around this virtual currency: what is it; how is it created and transferred; what are its advantages and disadvantages for corporates and investors compared to fiat currencies; is it a serious contender for a global payments system; and can it prove more durable long-term than other somewhat fixed-supply currencies like gold.

At the risk of sounding like a luddite, bitcoin looks like an innovation worth limiting exposure to. As a medium of exchange, unit of account and store of value, it is vastly inferior to fiat currencies. Since governments are quite unlikely to accord it the status of legal tender, bitcoin or other virtual currencies would not reach the scale and scope to render them worthwhile for widespread commerce, payments or investment.

Bitcoin’s greatest appeal is the apparent cheapness of peer-to-peer fund transfers, though it is unclear how economical these transactions truly are when the virtual world interacts with the real world. As provocative as its underlying technology may be, bitcoin’s practical role may be no larger than that of an emerging markets currency subject to exchange controls.

For corporates, bitcoin’s appeal is two-fold: no or low transaction costs from a peer-to-peer payments system, and the potential brand recognition from trialing a new technology. These advantages must be weighed against extreme illiquidity and volatility, both of which impede risk management. All-in transaction costs may also be higher once the fees from transferring bitcoins to fiat currencies are included.

Investors normally avoid an instrument with bitcoin's trading properties. The unit's main investment appeal is the potential long-term price rise due to limited supply, much like some commodities when the market balance tightens.

But more importantly, the scapegoating begins - DDoS attacks (via CoinDesk):

A “massive and concerted attack” has been launched by a bot system on numerous bitcoin exchanges, Andreas Antonopoulos has revealed.

 

The chief security officer of Blockchain.info said a DDoS attack is taking Bitcoin’s transaction malleability problem and applying it to many transactions in the network, simultaneously.

 

So as transactions are being created, malformed/parallel transactions are also being created so as to create a fog of confusion over the entire network, which then affects almost every single implementation out there,” he added.

And the culmination: BitStamp has halted withdrawals:

Dear Bitstamp users

 

Bitstamp’s exchange software is extremely cautious concerning Bitcoin transactions. Currently it has suspended processing Bitcoin withdrawals due to inconsistent results reported by our bitcoind wallet, caused by a denial-of-service attack using transaction malleability to temporarily disrupt balance checking. As such, Bitcoin withdrawal processing will be suspended temporarily until a software fix is issued.No funds have been lost and no funds are at risk.

 

This is a denial-of-service attack made possible by some misunderstandings in the Bitcoin wallet implementation. These misunderstandings have simple solutions that are being implemented as we speak, and we’re confident everything will be back to normal shortly.

 

Withdrawals which failed on the 10th and 11th of February will be canceled and the amounts added back to the customer account balances.We will communicate any further developments regarding this issue.Thank you for your understanding!

 

Best regards

 

Bitstamp team

Best regards indeed.

0
Your rating: None
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 02/11/2014 - 14:59 | 4424538 Flakmeister
Flakmeister's picture

Oh no... 

Paging Fonestar!

A DEFCON 5 moment, serious spin is needed... 

Tue, 02/11/2014 - 14:58 | 4424541 quintago
quintago's picture

LOL. Winkelvossed

Tue, 02/11/2014 - 15:01 | 4424553 takeaction
takeaction's picture

This Bitcoin is an absolute disaster...

Tue, 02/11/2014 - 15:02 | 4424557 Skateboarder
Skateboarder's picture

TOLD YOU SO!

Gold bitchezzz.

Tue, 02/11/2014 - 15:06 | 4424583 BaBaBouy
BaBaBouy's picture

Forget Virtual BitCoinz, Buy REAL GOLD...

FLASH FLASH FLASH ...

YELING Has ""NO GOLD"" For The GERMANNS!
(PS... Chinee Beat You To It...)

.......... Peter Boehringer of the German Precious Metals Society and the Repatriate Our Gold campaign reports today, with the help from the German newspaper Handelsblatt and translation from gold researcher and GATA consultant Koos Jansen, that the German Bundesbank has had two schedules for repatriating its gold from foreign vaults and has retreated from both of them.

Handelsblatt has reported: "Due to 'logistical challenges,' the Bundesbank no longer feels bound by its promise to the Bundestag."

Boehringer's commentary is headlined "Bundesbank Changes Gold Repatriation Schedule" and it's posted at Jansen's Internet site, In Gold We Trust, here:

http://www.ingoldwetrust.ch/bundesbank-changes-gold-repatriation-schedul...

Tue, 02/11/2014 - 15:08 | 4424600 fonestar
fonestar's picture

Nooo0oOOoo0oO0o!!!!!

Tue, 02/11/2014 - 15:18 | 4424623 nope-1004
nope-1004's picture

Thinking that a free currency competing against the reserve petrodollar would go unpunished is pure stupidity.  Market manipulation in all financials won't change until the balance of power changes to we the people.

 

Tue, 02/11/2014 - 15:17 | 4424645 fonestar
fonestar's picture

They're all powerful man!  Just accept it and surrender you little whiny biatchez!!

Tue, 02/11/2014 - 15:19 | 4424646 Xibalba
Xibalba's picture

bitcoin run

Tue, 02/11/2014 - 15:21 | 4424671 fonestar
fonestar's picture

How is it a run?  Notice the article states "another 15% or so".  I guess 80% plunge grabs clicks if not standing up to cursory fact checking?

Tue, 02/11/2014 - 15:34 | 4424722 Bizaro World
Bizaro World's picture

We all appreciate your enthusiasm fonestar, but come on man, is it really a suprise that an all digital currency is abled to be slapped around by multiple sources that even the exchanges can't immediately pinpoint?  Just wait until central bankers start taking over the attacks as happens in paper PMs....then Biatchcoin will truly become worth less.

Tue, 02/11/2014 - 15:38 | 4424739 pods
pods's picture

Then Bitcoin is going to be like Ned Beatty scurrying up that hill. 

And we know how that turned out. <shudder>

pods

Tue, 02/11/2014 - 15:44 | 4424766 fonestar
fonestar's picture

Bitcoin nice at $644.. could roll down into $500s but could just as easily head back into $800s.

Tue, 02/11/2014 - 15:48 | 4424781 pods
pods's picture

I mean, it could be $200 or $10k.  Or somewhere in between.

If you can get them, and they aren't stolen.  And you have to be on the cutting edge of storage and constantly move them to ensure you don't get ripped off.

Sounds like a lot of fun.  

Gold just sits there.  I like that a lot more.

pods

Tue, 02/11/2014 - 15:54 | 4424805 fonestar
fonestar's picture

You mean like Gaddafi's gold in London just sat there?

If you don't feel comfortable doing data backups don't buy Bitcoin.  If you believe the sun is going out or we are heading into a global ice age, don't buy Bitcoin.  If you plan on dying in a shoot-out with federal agents anyway, don't buy Bitcoin.

Tue, 02/11/2014 - 16:04 | 4424855 SoberOne
SoberOne's picture

Looks like imade a (rare) timely cash out. My gold survived the last ddos attack.

Tue, 02/11/2014 - 16:25 | 4424935 zaphod
zaphod's picture

So did my bitcoins, none of mine are effected by this.

And so are the effected transactions, the same bitcoins are still successfully sent to the same addresses. 

It's just a tracking issue for 3rd parties who implemented their own (bad) code. To correct the tracking issue is simple and straight forward, most have done so already. This attack is forcing the rest to fix as well.

The correct takeaway is that if this is the best those who want to attack the system can do, bitcoin is fine.

Tue, 02/11/2014 - 17:02 | 4425078 Herd Redirectio...
Herd Redirection Committee's picture

Satoshi = Gavin Andresen, chief scientist at the Bitcoin Foundation who is also a bitcoin core developer

Tue, 02/11/2014 - 17:53 | 4425283 Prisoners_dilemna
Prisoners_dilemna's picture

“I expect things will go back to normal and the honey badger of money can continue showing its resilience,” he said.

“The death of bitcoin has been prematurely announced so many times already that the obvious conclusion is that bitcoin is far more resilient than its critics would like to think. I am confident that in a few days, those who predicted the death of bitcoin will once again be proven wrong”

 

 

 

Yawwwwnnnnn.

Tue, 02/11/2014 - 18:25 | 4425441 Bindar Dundat
Bindar Dundat's picture

I bought mine at $ 199 so I am still ok.   BTFD !!

Tue, 02/11/2014 - 18:47 | 4425536 boogerbently
boogerbently's picture

"suspending withdrawals....'

Isn't that EXACTLY what everyone's "worst case scenario" was  with banks/fiat???

Tue, 02/11/2014 - 19:07 | 4425644 fonestar
fonestar's picture

It has never been a concern of mine.

fonestar can remain insane longer than markets can remain irrational.

Tue, 02/11/2014 - 19:22 | 4425711 nmewn
nmewn's picture

"fonestar can remain insane longer than markets can remain irrational."

Boy, ain't that the truth...lol.

Tue, 02/11/2014 - 19:52 | 4425774 Jack Napier
Jack Napier's picture

You don't have to worry about suspended withdrawls, flash crashes, or Internet outages when you are your own central bank. BitCoin may not have middle men taking their cut, but there is no shortage of intermediaries who can slow your roll.

I fail to see why anyone who understands the systemtic risk to the financial system would trust a cyber asset of any kind. Speculate if you want, but don't cry when you get flambéd.

There's only one type of asset that protects from both inflation and default. Hard assets that can't be reproduced; that are durable, divisible, portable, fungible, and we may as well throw tangible on that list. Nothing but metals for the win.

Wed, 02/12/2014 - 03:18 | 4427146 digi
digi's picture

Everything you said that was positive applies to bitcoin, I actually thought you were referring to bitcoin in the first sentence.

"You don't have to worry about suspended withdrawls, flash crashes, or Internet outages when you are your own central bank." That's the main idea behind bitcoins creation

can't be reproduced, check

durable, check

divisible, check

portable, check

fungible, check

Guess bitcoins aren't so bad afterall.

Tue, 02/11/2014 - 17:03 | 4425089 Stackers
Stackers's picture

I've been patiently waiting for my sub $500 buying opturtunity for months.

 

And of course JPM hates bitcoin. Fractional reserve banks jealously guard the right to create credit/money from thin air fiercely

Tue, 02/11/2014 - 18:04 | 4425335 warish
warish's picture

What would a denial of service look like for gold, feds at your door with guns drawn ?

Tue, 02/11/2014 - 16:08 | 4424869 pods
pods's picture

How about something much simpler?

Like, I don't think Bitcoin is a viable store of my surplus capital?

pods

Tue, 02/11/2014 - 17:02 | 4425077 tmosley
tmosley's picture

That's what gold is for.  Bitcoin is for transacting.  Your wallet is like your bank account.  You don't keep all of your savings in your bank account, do you?

Paying with bitcoin is so easy, and it feels great to make payments without getting your pocket picked by bankers.

Tue, 02/11/2014 - 17:21 | 4425151 giggler321
giggler321's picture

How can you say "without getting your pocket picked by bankers" when in truth if it wasn't convertable into dollars, made so by bankers so they can manipulate the price of it, you'd probably have nothing now but numbers in something someone else calls a digital wallet?

 

Tue, 02/11/2014 - 17:46 | 4425267 tmosley
tmosley's picture

You can trade them for goods and services directly.  You can also use a service like localbitcoins.com to trade them for dollars without any bank participation in the transaction.

Banks are involved with the exchanges due to money laundering laws.  The simple solution is to NOT USE THEM.  And you don't have to.

 

Tue, 02/11/2014 - 17:21 | 4425152 pods
pods's picture

I agree on the principle of it. But there is too much uncertainty about it at the moment to risk it.  And those who want to hurry people into BTC are pumpers who don't want a stable exchange that WOULD make it worthwhile to transact in BTC but want a bloww off top to get out and make their coin.
So it is clearly a conflict of interest between those who like the stateless aspect of it (which would be me) and those who want it to shoot to the moon. 

Not seeing the paying with BTC avoiding getting your pockets picked by bankers. Seems that goods are PRICED in USD and you merely transact in BTC. You are still getting killed by inflation of the currency that the goods are priced in, are you not?  I have seen discounts for paying in BTC at severa places, if that is what you mean and that would give you an advantage, but if I want to buy something I don't want to watch the BTC charts and pick the daily top to purchase something.

Too volatile for me.

pods

 

Tue, 02/11/2014 - 17:58 | 4425303 tmosley
tmosley's picture

Why don't you buy $100 worth, then?

If you analyzed it for yourself, you would see that it is useful, even if it is volatile.  You can buy things with it without paying a tithe to the banks AND you can move money anywhere on the planet in an instant.

Tue, 02/11/2014 - 17:46 | 4425253 silverserfer
silverserfer's picture

just give it a few more months. Your digi-wallet will get picked soon enough.

Tue, 02/11/2014 - 17:57 | 4425312 tmosley
tmosley's picture

Not really.  There has been plenty of opportunity, and they have yet to do it.

The system was made in such a way that you can't really steal on a systematic basis.

Tue, 02/11/2014 - 20:00 | 4425867 Quantum Nucleonics
Quantum Nucleonics's picture

But any 14 year old with a zombie-bot army can crash the whole system.  Doesn't inspire confidence. Bitcoin is a ponzi scheme for the 21st century.

Tue, 02/11/2014 - 20:32 | 4426001 tmosley
tmosley's picture

Except they can't.  You don't understand the system, so you can't make any relevent predictions.

If a botnet could take down bitcoin, it would have, long ago.  The only thing that can take down bitcoin is to gain PERMANENT control of 51% of the miners AND keep them running FOREVER.  If they ever let up, it just reverts back to what it was before.  It's an exercise in futility.

Tue, 02/11/2014 - 22:33 | 4426461 TheHound73
TheHound73's picture

Bitcoin's strides to increase security and combat hacking trickles down into all aspects of the online world.  For instance, Bitcoin was the first to expose a serious flaw in Google's Android system used by many, many other platforms besides Bitcoin.  Google quickly acknowledged the flaw and fixed it, increasing security for everybody.

Tue, 02/11/2014 - 18:49 | 4425544 boogerbently
boogerbently's picture

You're "wallet" just got picked!!!!

GET IT ?

Wed, 02/12/2014 - 03:40 | 4427167 Invinciblehandaxe
Invinciblehandaxe's picture

Dude you dont know shit and it shows

Gaddafi's gold was not stored in fucking england bitch

It was all over LIbja and some in other african states

Thats why North Atlantic Terrorist Organization

had to bomb the shit out of Libja in order

to pave the way for the USSA army thiefs

Tue, 02/11/2014 - 15:53 | 4424813 BC6
BC6's picture

It costs approximately $5 to dig an ounce of silver out of the ground in my backyard even though I live on a 2nd floor building.

Tue, 02/11/2014 - 16:27 | 4424943 pods
pods's picture

Methman?  Oh the memories!

pods

Tue, 02/11/2014 - 18:38 | 4425485 fiddler_on_the_roof
fiddler_on_the_roof's picture

Master Bates : remember him ? funny guy tho.

Tue, 02/11/2014 - 18:53 | 4425556 mt paul
mt paul's picture

found a 5 $ bill

in the parking lot yesterday..

 

was looking for silver..

Tue, 02/11/2014 - 15:55 | 4424826 RockRiver
RockRiver's picture

Bitcoin nice at $644.. could roll down into $500s but could just as easily head back into $800s.

 

LOL!

You really dialed that in for me....It could go up or it could go down......

 

Thanks Dood!

Tue, 02/11/2014 - 15:59 | 4424841 fonestar
fonestar's picture

Thank-you for choosing fonestar.

Tue, 02/11/2014 - 16:50 | 4425023 lordylord
lordylord's picture

I laughed at that one too.  Children (e.g. Fonestar ) should be neither seen nor heard.

Tue, 02/11/2014 - 17:03 | 4425084 tmosley
tmosley's picture

Funny, if he said it only went up, then he's a pumper.  If he said it could go up or down, he's useless.  If it is gong down, then why own it?

Whatever it takes, so long as you dismiss the idea without any actual thought or analysis.

Tue, 02/11/2014 - 17:14 | 4425125 lordylord
lordylord's picture

My stance on bitcoin is the result of much thought and analysis.  Bitcoin is just being pumped by people who want to make money for doing no work and cheerleaded by angsty anonymous internet users with grandiose visions of a future where governements willingly allow the return of sound money and free markets.  The ONLY way  we get back to sound money and free markets is if a total collapse happens first.  At that time, some meaningless internet coins will be worthless.

Tue, 02/11/2014 - 17:54 | 4425286 tmosley
tmosley's picture

"much thought and analysis"

"money for doing no work"

"angsty"

"grandiose"

Sounds much more like ad hominem than analysis, friend.

Do NOT follow this link or you will be banned from the site!