The First "Bitcoin Bail-In": All Bitfinex Users To Lose 36% In "Shared Loss" After Historic Hack

Tyler Durden's picture

Last week's sharp, 30% plunge in the price of bitcoin (and its latest competitor, ether), after news hit that 119,756 bitcoins, or about $70 million, had been stolen from the Hong Kong-based bitcoin exchange Bitfinex, demonstrated once again the biggest risk with digital currencies: despite claims to the contrary, outside hacks remain a key threat and risk to anyone holding  (obviously, we use the term loosely) digital currencies.

 

 

 

Now, adding insult to injury for those who "held" their BTC at the hacked exchange, Bitfinex announced it would pull a page right out of Europe's bank resolution mechanism, saying that all of its users will lose 36% of their deposits after it concluded its review the massive hack, in what is set to be the first ever "bitcoin bail-in."

And, in pulling another page out of Europe, Bloomberg adds that to compensate its customers, Bitfinex users would receive (largely worthless) tokens that may later be redeemed or exchanged for shares in its parent company. Following the announcement, bitcoin climbed to $599 in early trading on Sunday. The virtual currency had dropped 12% to $577.23 in the week through Friday, its largest weekly decline since June, however has now recovered all of its sharp drop which had seen its price tumble as low as $470 on August 2.

“After much thought, analysis, and consultation, we have arrived at the conclusion that losses must be generalized across all accounts and assets,” the exchange wrote in a blog post on Saturday. “In place of the loss in each wallet, we are crediting a token labeled BFX to record each customer’s discrete losses.” Good luck monetizing said "token."

The blog post ended as follows:

Thank you for your continued patience and for the many generous offers of support that we have received over the last several days. Notwithstanding this attack, we continue to believe in the possibilities associated with bitcoin. We will continue to update our customers and the public as and when we can.

According to Bloomberg, a representative of the exchange wrote on Reddit that the 36% loss “applies to all assets across the site, so everyone.” The exchange previously said losses would only apply to users who either had bitcoin deposited at the exchange or who were in the process of lending U.S. dollars for margin trading.

Following Tuesday's Bitfinex hack, the exchange closed down trading, withdrawals and deposits and said it was cooperating with law enforcement and would update the public after its investigation. In the latest blog post, it said it will reopen with limited functionality in the next day or two. Bitfinex was the largest exchange for U.S. dollar-denominated transactions over the past month, according to bitcoincharts.com. 

As we predicted one year ago, the main reason for the surge in bitcoin has been the explosion of Chinese users of the virtual currency, who have rushed into bitcoin as one of the few remaining options to bypass Chinese capital controls on monetary outflows. As such the Bitfinex hack, impacting numerous Chinese participants, has not come as much of a surprise: what better way to limit trader euphoria for an asset that has soared nearly 200% in the past year than by "forcing" a loss of nearly a third on everyone involved.

It remains to be seen if this latest bail-in "glitch" will temper Chinese euphoria for the digital currency; considering the sharp rebound which has practically filled the entire hack "gap"...

... hackers will have to work overtime to temper the infamous Chinese enthusiasm for buying more of things that go from the lower left to the upper right.

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Thoresen's picture

Gold at the bottom of the lake is safer.

Pladizow's picture

Just a bit off the top. Meanwhile my gold bars remain whole!

BaBaBouy's picture

Whats the exchange Rate ~~~ 1 Bitcoin for 10 Pokeman Shroobles ???

BaBaBouy's picture

"Gold at the bottom of the lake is safer."

Which Lake ???

thesonandheir's picture

This is totally wrong and Bitfinex must be liable to a class action suit surely?

 

Why are they not insured for malicious actions?

TahoeBilly2012's picture

This shit makes the FED and the Banksters look like clergymen by comparison.

Perimetr's picture

That's why a GLOBAL DIGITAL CURRENCY will be sooo safe and secure

as long as you are on the controling end of the computers

law-perspec's picture

Typical ZH hysteria here. You know you can like gold and cryto currency right guys? It's not mutually exclusive. Cryto's are in unfettered free-market mode. This is just a product of good companies vs. bad. Try Xapo as seen on RealVision TV. 

beemasters's picture

The only people that really crazy about cryptocurrencies at the moment are probably those who bought them early, have invested too much in it or money launderers.

junction's picture

Bitfinex stole the bitcoins, it does not need insurance company investigators to solve the crime.

Doom Porn Star's picture

Maybe not in the first instance; but, certainly in the second.

Were the customers even told that they could be bailed-in under certain circumstances, or did Bitfinex just make that decision because their systems didn't really have allocation accounts -only a facade of allocation presented to customers but in reality on a spreadsheet/ledger without direct association to the deposits?

Very MF Global-esque... 

 

I would image that Bitfinex is potentially going to have a much tougher time with any organized crime figues who may have just been robbed of 36% of their stash than lawyers for small-time dealers and hustlers and speculators.

Bunga Bunga's picture

Bitfinex lied to the customers. People who keep bitcoins on an exchange deserve the loss. Better keep them at home and hodl!

jcaz's picture

Awesome- a click-bait article for all the Bitcoin faggots who are worried about their $600 stash.......

A tip to the Bitcoin Boys-  move out of your parents' basements and get a job-  you missed the pop.

scsherman's picture
scsherman (not verified) Doom Porn Star Aug 7, 2016 7:25 PM

You are right. This isn't over. Average users will accept the loss, but those heavily invested will be seeking retribution however they can.

Mini-Me's picture

And don't call me Shirley.

Max Hunter's picture

Oh yeah.. This digital money is a great idea...   Can someone please post the South Park video "and it's gone" ... in the bank.. LOL

Doom Porn Star's picture

Because there is nothing to insure.

How do you insure a blockchain?  Who would knowing both about Mt. Gox and Bitfinex, as well as hacks of The FED/Swift system?

Al Tinfoil's picture

Insuring Bitcoin exchanges looks like an ideal bet for AIG and Deutshebank.  Add to the derivatives pile.  A sure winner.

Do I need to add "/sarc"?

On slightly more serious note, do Bitcoin buyers/speculators expect the FDIC to ride to the rescue when their "supersecure, untraceable" Bitshit goes missing?  It's all ones and zeroes, liable to disappear down a wire, Bitchez.

Hulk's picture

"Which Lake ???"

Why Lake Wobegon, of course !!!

commander gruze?'s picture

I just can't believe it: it's 2016 and people still confuse "one of many Bitcoin exchanges was hacked" with "Bitcoin was hacked". Learn the difference ffs.

It is as true in Bitcoin as it is in Gold: if you don't hold it, you don't own it. Lesson to be learned: own your private keys, not a claim on btc.

Croesus's picture

Here's an experiment for all you BTC proponents; stop into a convenience store, and try paying the Sikh, or Paki, or Indian with one. Explain all of BTC'S pros to them.

Repeat the experiment with a gold coin. 

They'll take your gold, FIRST, every single time. 

Gold is in the genes with some people, and they correctly realize that their thousands-of-years-old culture, evolved the way it has, because the system worked. 

Many people do not view technology as "having all the answers", and regardless of BTC's utility, they will always prefer to stick with what they know. 

BurningFuld's picture

A gold coin? Damn that's a lot of snack food and beer.

Food Loaf Junkie's picture

Well, a one gram bar is currently about 43-44 dollars, Thats not all that much at a 7-11 these days.

Sam.Spade's picture

OK, here is a counter-example.  TPTB impose currency controls and you want to take you money out of the country.  How you gonna do that, bubba?  You can only stuff so many coins up your ass and the airport x-ray machines will still find them....

Que Bitcoin...

nmewn's picture

Because everything from heroin to diamonds to ivory to elephants MUST transit through an airport.

(Rolls eyes)

Sam.Spade's picture

OK, you going to hide it in your car and try to get through Mexico?  Good luck with that if the US gets difficult because Mexico will really get serious.

Or do you have a better idea?  If so, I am all ears.

Doom Porn Star's picture

nmewn is correct.

The borders are so fucking porus that literally tens of thousands cross them with impunity every month.

-And they carry eanything and verything you could possible think of: from human organs to pure heroin to genuine high-tech military hardware, etc. etc., etc...

Smuggling is merely a matter of planning, cunning, audacity and/or bribery.

Bunga Bunga's picture

That is true, but it is still not easy and legal to smuggle gold through the border. Bitcoins would be just a big number you keep in your head.

True Blue's picture

Goldfinger (in the Ian Fleming book) did it by casting car parts of his Rolls Royce out of 10K white gold (headlights, door skins, handles etc.) I am sure more clever ways have been created since 1959.

nmewn's picture

Now see, you shouldn't automatically be thinking about Mexico or car's or airports. You might be thinking Canada ehhh (lol) or Cuba or maybe even Vanutua or China by land, sea OR air. 

Floridians have a very long history of smuggling (of whatever) and we're very good at it so don't worry so much about how we do it, just be confident knowing we can & do.

In other words, if you confine yourself to just one method (say for instance, the internet...lol...or having a passport or visa or accounts & wallets) you may find your way...blocked.

But hey, knock yourself out ;-)

Doom Porn Star's picture

Exactly right again, mnewn.

 

Trying to fly/drive/walk through with the Customs Officials, TSA, etc. waiting to search, gap and probe cavities ,etc. is fucking stupid.

A decent size catamaran or yacht would have many places to stowe and smuggle quite a decent trove of pm, art, high priced wines, drugs, contraband, and/or other materials; with much less interference if one is not foolishly blatant in calling attention to their activities.

 

wildbad's picture

i agree 100%.  this points out the VERY different uses of bitcoin.  the blockchain asa asafe transfer mechanism is PURE Genious.

 

digits, though, having no intrinsic value (other than finite scarcity)  can't stand up against real hard assets, even paper.

 

so, i move cash across borders and close out the transactions with a zero balance (usually with a slight BC gain) but it is almost always cheaper than the alternatives to moving money and NO GUBBMINT involvement.

 

investing in BC can be a good play BUT STORING ANY SERIOUS SUM ANYWHERE BUT IN THE BLOCKCHAIN ITSELF IS DUMBER THAN DUMB

harrybrown's picture

who says you gonna leave in a plane or boat thats manned by gubamint peeps!

 

GardenWeasel's picture

If I have PM in my home country it is for spending in my home country. If I want to avoid currency controls and store wealth in a safe place I just buy gold and have it stored in Singapore, Hong Kong, Vienna, etc.  It can be done online. I can even open an overseas bank account online. Duh!  Smuggling is soooo last year, so stop with the cloak and dagger stuff already. I think you guys are just arguing for arguing's sake. Jeez. If you must go all smuggler on us, I doubt they will take your wedding ring, or do an assay on your belt buckle.  But really, just use the internet.

scsherman's picture
scsherman (not verified) GardenWeasel Aug 7, 2016 7:35 PM

And I am sure you will have an easy time getting your gold out of those banks when the global economy collapses. Good luck with that.

tmosley's picture

Ok, next go to any collapsing country with all your gold or your bitcoin address. Now try to get out with your wealth intact.

The border guards will take your gold, FIRST, every single time, whether you like it or not.

wildbad's picture

..if you have wealth in a collapsing country and you can convert it to bitcoin, you simply leave the country.  you show up in eden and sell you BC for the local fiat.

works EVERY time.

Doom Porn Star's picture

Are you not paying attention at all?

You were just PROVED 100% WRONG by the Bitfinex heist and bail-in that is the basis of this whole discussion!

Not only did somebody get to their destination and 36% was fucking GONE; but, the restof the bitcoin is now seriously impaired/devalued as a side effect of the heist and bail-in!

They might have lost a lot less just paying a bribe and moving hard coin.

Grave's picture

apples and oranges dumbass

always keep bitcoins in your own wallet
(remember your private key, if its too hard, encrypt it and remember the passphrase and then print it on a paper or engrave it on a golden coin)
and not in a fucking third party "virtual wallet"

its like keeping your gold in a bank where it can be stolen by robbers/banksters/government, etc instead of your own pockets/safe
or even like debtfiat which is being stolen by hackers from banks every single day (and governments via inflation, etc), its just not reported because "trust" is the only "real" asset a bank has

Golden Phoenix's picture

Going to convenience stores and flashing gold coins sounds like a good way to end up dead.

Bunga Bunga's picture

Get a shiftcard and some BTC.

Jay's picture

There are hundreds of retailers that take bitcoin but not gold. The problem for the Chinese, however, is how to get your savings out of the country. Gold doesn't solve that problem well because it's too easy to find and confiscate.  

Oracle of Kypseli's picture

2050 AD. Mom what is Bitcoin?

Back in the day son, when governments were controlling people, they found a way to steal more money by luring the gullible masses into storing their assets electronically to slow down gold buying which eventually broke them.

Here2Go's picture

Can you translate that into Annunaki? lol

Oracle of Kypseli's picture

solve this palindrome and you have your answer:

"ni?on anonimata mi monan o?in"

Here2Go's picture

I will if u say this 3 times real fast...

 

"The sixth sick shieks sixth sheep's sick"

 

or, give me the airspeed velocity of an unladen swallow...

True Blue's picture

African or European?

-Or is that raaaacist?