Is The World's Largest Bitcoin Exchange Headed For A Mt. Gox-Style Collapse

Tyler Durden's picture

Could Bitfinex, the world's largest, Hong-Kong based cryptocurrency exchange, be headed for a Mt. Gox-style collapse? It's starting to look that way.

When Mt. Gox first halted customer withdrawals in February 2014, it waited more than two weeks to admit the truth to its customers: that hackers had stolen more than $450 million of their assets, leaving the exchange bankrupt and them holding the bag.  That hack effectively crippled the entire digital currency ecosystem, ushering in a two-year bear market that at one point carried the bitcoin price below $200, from what was then a record high north of $1,200 reached in November 2013.

So when another exchange engages in similarly shady behavior - withholding critical information about customer funds, or failing to produce audited financials despite promising to do so - it should prompt crypto traders to ask themselves why, with dozens, if not hundreds, of cryptocurrency exchanges operating around the world, they're choosing to do business with this one.

That's the question that customers of Bitfinex should be asking nearly two weeks after the exchange, once one of the world's largest, first revealed that it had been cut off from sending outbound dollar-denominated wires to its customers.

Of course, halting customer withdrawals isn't uncommon in the cryptocurrency world: All three of China's largest exchanges suspended customer withdrawals in February. And last year, Kraken, one of the biggest U.S.-based exchanges, suspended withdrawals temporarily because of a glitch in its trading software.  But this freeze is particularly troubling because, like Mt. Gox, Bitfinex inexplicably decided to wait before informing customers of a critical problem. It also has implications that stretch beyond the bitcoin market, to another cryptotoken called tether that was launched by Bitfinex back in January 2015, and has since been dogged by allegations that it's a scam.

The halt is already costing Bitfinex's customers money. On Tuesday, bitcoins were going for $1,547 on Bitfinex's platform, a premium of more than $100 over most of the other popular exchanges. Investors, apparently, feel that eating a 7%-8% loss is preferable to leaving their assets in Bitfinex's care any longer.

Reddit users reported that wire transfers requested as early as March 9 were cancelled, and that the exchange offered only vague excuses as to why. It took the exchange until April 13, after it had filed a lawsuit against Wells Fargo & Co., whose correspondent banking division had effectively shut Bitfinex out of the global financial system, that the exchange disclosed the problem to its customers.

And while Bitfinex has repeatedly said it would make things right - it has promised to either establish a new banking relationship and to allow customers access to other fiat currencies  - only a handful of customers have been able to get their assets out of the exchange.

As part of the freeze, Bitfinex has established a moratorium on cashing in tether tokens held by its customers. These tokens were created by Bitfinex in 2015 to allow customers to exchange an asset that's pegged to the dollar at a one-to-one ratio, allowing them to avoid costly wire transfers that must be processed through the banking system.

But the withdrawal freeze has put pressure on the tether market; for only the second time since they were introduced, investors are selling these tokens at a discount. The price of a single token has been languishing below the $1 level for more than a week.

More troubling still is that Bitfinex has so far refused to provide an audit of the fiat funds that allegedly backstop the tether float, despite promising that it would be "fully transparent and audited to demonstrate 100% reserves at all times" when it first launched the token.

This has lead some to speculate that the exchange could be commingling tether funds with other customer assets.

While evidence of this could cause irreparable damage to Bitfinex's reputation, leading to a wave of withdrawals that could add further strain to its already thinning bitcoin reserves, as Twitter user @Bitfinexed points out, it's not technically a violation of the tether terms of service.

Here's an excerpt: "There is no contractual right or other right or legal claim against us to redeem or exchange your tethers for money. We do not guarantee any right of redemption or exchange of tethers by us for money. There is no guarantee against losses when you buy, trade, or redeem tethers."

Given the preponderance of scams in the cryptocurrency market, investors who haven't already, should probably take what's left of their money and run, if they can of course.

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Davidduke2000's picture

Why Tyler has to spoil the party for all the bitcoin crowd ? leave them alone to learn the hard way.

tmosley's picture

Only low IQ bitcoiners (who have IQs orders of magnitude over those who bitch about it while not understanding ANYTHING about it) leave their BTC on any exchange.

Praying history repeats itself and we get a nice BTC bear market so I can get back in. Feel like a fucking moron for getting out in favor of silver.

EHM's picture

"Only low IQ bitcoiners (who have IQs orders of magnitude over those who bitch about it while not understanding ANYTHING about it) leave their BTC on any exchange."

Sure I'll buy that. The problem is that it is 99% of so called "bitcoiners"

timetraveler's picture

Litecoin LTC is the future. Charlie Lee is a genius as he got Coinbase to recently add it to their wallet. Will keep rising as SegWit activation gets nearer (7 days). http://litecoinblockhalf.com/segwit.php

CJgipper's picture

Still traded in an exchange subject to hacking.  

 

Again, never leave your real money on an exchange.  Take the crypto to your wallet at the end of the day or when not in use.

giovanni_f's picture

correct. don't leave more than chump change to the discretion of the exchange. maybe some crypto traders don understand the basic principle behind bitcoin, and, being unable to create a personal a/o paper wallet for themselves, are at a loss when the exchange runs into problems with fiat transactions.

Rules for the non-traders:

1. Spread the risk and buy some Monero, NEM, DASH, Litecoin and maybe ETH/ETC in addition to your BTC, e.g. To this end, use cryptoconverters such as shapeshift or changelly to buy alt currencies

2. Avoid Ripple at any cost beause it is the darling of the systems that has ruined our money in the first place. You may acquire Steems in low quantity but only in order to attack facebook.

3. Consider a bunch of other alts such as PIVX, Dogecoin, Sia, Stellar - which are funny/interesting/potential game changer but can vanish also overnight with no announcement (e.g. when the 2-man developer-team behind a cryptocurrency has finished university and moves on to other endeavours...)

4. There is no guarantee that NOT all or some of the cryptocurrencies will become ZERO overnight

5. There is no guarantee that NOT all or some of the cryptocurrencies will become ZERO overnight

MalteseFalcon's picture

Wait.

Is it the flagon with the dragon or the chalice from the palace?

OceanX's picture

What I see happening is TPTB will adopt cryptocurrency tech and then use a 'wrapper' as a container to hold any number of different currencies. Thus allowing thus use of as much crypto as they like...  Need more currency, add another blockchain to the container, code the interface to 'detect' what flavor and make the conversion.

That's my primary reason for walking away from it.

giovanni_f's picture

I agree. Blockchain/Bitcoin was devised as a decentralized peer-to-peer money but it will be adopted by the bad guys to acheive the opposite using all the regulation at their disposal, i.e. total control unter the pretexts of "end user protection", "AML" and all that shit.

Starvation 2017's picture

"99%"

Where the hell did you get that number? I bought into BTC because I'm a skeptic of the banking system, you think I'm going to let someone hold onto my money when I safely possess it locally? The people who leave their money with the exchanges are the same kind of people who caused gold to bust in 2012. They see it as a bandwagon of profitability, they don't understand the inherent value at all. "It's just a piece of metal", or in this case "It's just a digital ledger system".

giovanni_f's picture

(he is one of the 99% left behind living on foodstamps hating everything he doesn't understand)

the biggest risk is not the profiteers but the governments. They will either forbid it or hijack it, or do a combination of the two. I am a blockchain afficionado (and most if not all who are "against" it have no clue what "blockchain" means) but one has to see that the blockchain technology is the same time a control freaks wet dream.

Btw, the US$ is also digital money. I propose for it the name "toiletcoin", symbol TOLT.

lickspitler's picture

Hey Mosely you doush .....See all these guys down voting you because you are a Bitcoin evangelist. in 2014 you were worse you arseclown.

Urban Roman's picture

Since we chatted, I have stayed on the BTC-e exchange, swapping back and forth between BTC and LTC to practice me trading skillz.

LTC had a couple years of no players at all, and a long bearish grind lower. But recently, it seems to have attracted some attention. If it keeps up, I might become a two-bicoinaire again :-)

As you know I have had a hard time taking it too seriously..

[edit]
Vertcoin and dash never really attracted a critical mass of players. They are both still out there, but down in the mud. Public relations and advertising have a lot to do with how well an altcoin does -- regardless of how well thought-out (or frivolous, like dogecoin) its structure.

[edit2]
I opened a Coinbase account, but never connected it to my bank. Somehow I just can't bring myself to give those weasels access to my $$'s. Yah, I know, the $ is just some electronic bits too, on a network that was programmed in Cobol.

I coulda bought some BTC back when they were $800. Woulda, shoulda, coulda.

lickspitler's picture

Jezas Mosley  you chased me off the Turd Ferguson site because I said Bitcoin would go over $50 before silver did. Now you're a big convert and sound like the prick in the room that gave up smoking. You are an arseclown. What goes around comes around you red neck sheep.

stecha's picture

LOL, I ran BIT and Silv. Won abit on silv but YUGE on BIT/USDT. Whatch for litecoin to finally hit 50 and beyond. WOOT great days inded!

HopefulCynic's picture

If this happens, you will get your wish, which is also what I am waiting for. 

dark pools of soros's picture

Yeah always keep more digital than pms when trading. I'm about to grab some gold selling a few bits and will grab more bits on the next exchange fiasco

Oracle of Kypseli's picture

Bitcoin will proved to be the largest heist on the planet by the elite scheming the top of illegal and/or gambling money.

giovanni_f's picture

This "comment" takes moronism to a whole new level: Goldie, why should "the elite" come up with something like btc if they already control the USD, EUR, YEN, CNY trillions?

btc may well cease to exist at some point, maybe even soon, in fact it will as all man-made stuff but that does not mean it is a heist. Threrfore: Stop watching porn for a couple of hours and do some reading starting here. Then tell us specifically where the "heist" is.

Oracle of Kypseli's picture

It's called flush-out for one and in conjuction with gold supression masks the supra-inflationary trends.

giovanni_f's picture

congratulations - with this comment you've qualified yourself as a regular guest contributor to king world news.

Lady Jessica's picture

If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth. 

 

What's to say this hasn't already happened.

astartes09's picture

No bitcoin exchange has ever allowed a third party audit.  

NoDebt's picture

So they're like the Fed, then.

 

giovanni_f's picture

+1

Teja - three people downvoted you for the sheer fact that a claim they were religiously-mentally attached to had been entirely disproved beyond any doubt. If this doesn't tell us a lot about how mental garbage features as "opinion" and is fought for with religious fervor.

(In fact, the exchange bitcoin.de has regular audits and is fully compliant with German law).

lester1's picture

Bitcoin is a fad, kinda like pogs.

tmosley's picture

And like the internet.

SoDamnMad's picture

Bitcoin lovers tell me what you will do if we have an EMP attack or a 1859 Carrington level solar storm?

aminorex's picture

My bitcoin will remain safe until the power comes back.  Not so sure about your USD though.

HooRAY4rSIDE's picture

Yeah ~ I'm sure that EMP is gonna make my roll of $20 bills spontaneously combust.

giovanni_f's picture

if you get caught with a 20$ bill it will be subjected to civil forfeiture. if you protest, they will put you in a fema camp.

83_vf_1100_c's picture

  In that event we are all fucked. Food, water and the ability to survive 1800s style will be all that matters.

rejndjer's picture

what will u do when u die and your gold is still <1200$?

lickspitler's picture

What happened to ll that "stacking " shit you used to go on about

Raffie's picture

Total fad is why its the only crypto currency listed in the FOREX

atomp's picture

So you're saying it's as good as fiat.

Raffie's picture

Considering all the countries and states are adopting it. Quite amazing how its growing.

Also to be in the FOREX Btc has to meet many criterias.

So how much research have you done on bitcoin again?

3LockBox's picture

Are those the same states and countries pushing the cashless society meme. Bet they would love to push everyone in and have full control. Japan has hit the money printing pretty hard. Isn't that one of the countries embracing these fantasy digits?

BeanusCountus's picture

Haven't researched as much as I should, apparently. A little puzzled how this stuff could go up as gold is going down.

Troy Ounce's picture

 

 

Easy, the gold & silver prices are managed by our financial Mandarins and the US Gubbermint.

An exploding gold price means there is something seriously wrong with the economy. Can't let that happen, can you?

I would even argue that a managed gold price is a national security asset. 

stacking12321's picture

Wrong explanation.

Gold price is manipulated with naked shorting / fake sell orders.

Bitcoin not easily shorted the same way.

Troy Ounce's picture

 

Stacking, you did not read my post. I did not explain HOW the gold price is manipulated but WHY the gold price is what it is.

Condition 1SQ's picture

The spread has been $100 for a few weeks now.    Fiat has been leaking out via HKD withdrawals at Taiwanese banks.  Basically, this is getting arbitraged, and it's causing the price to rise on the other exchanges.  However, the arbitrage is limited to a minority of customers who can withdraw HKD, thus the spread doesn't get squashed.  From what I've seen, Bitfinex has been pretty transparent about the whole thing.  They regularly post to reddit, along with their legal counsel.  My hunch is Bitfinex will re-enable USD withdrawals within a month once they find a new bank, and you'll see the price between Bitfinex and the other exchanges return to normal.  MtGox failed due to a solvency issue.  There's no evidence that solvency is an issue here. 

astartes09's picture

The CIO also goes on Whalepool.io's youtube and regularly talks about the internal workings of the company.  ZH trying to spread FUD and failing hard.  Bitcoin dont care.  

Seasmoke's picture

The great thing about Bitcoin. There is nothing in your pockets weighing you down when you decide to run. 

astartes09's picture

Tell that to the morons on here that spout off on how great silver is. Have fun lugging that chest around in the apocalypse. 

silverer's picture

There is only one gold and one silver metal. There are no others. With Bitcoin type crypto currency, 500,000 people or whatever can set up block chain currencies. And in doing so, the concept of a limited digital currency is completely destroyed. Kind of like a machine you can buy for $10.00 that can turn wood into gold. Soon, gold would be used for roofing and siding. Bitcoin would be used for...?