While not a month goes by without a new drama in the Bitcoin soap opera, April 2017 has seen the development of a new, and unpredictable storyline that could take us in any number of directions. It all began at the start of the month when Bitfinex announced that wire transfers in US Dollars were unavailable due to refusals from their banking partner Wells Fargo. This quickly developed into transfers being denied in any currency, and Bitfinex responded by filing a lawsuit with a San Francisco federal court. The lawsuit was dropped a few days later with no reasons given, although I suspect it was on the basis of sound legal advice – Bitfinex is not a US company operating on US territory, so its jurisdiction in a California courthouse is tenuous at best. Fast-forward to the month’s end, and nothing has been resolved. Wells Fargo refuses to explain its position, and Bitcoin is responding in the only way it knows how: higher prices. Confused? You should be.
Battling the spectre of MtGOX
MtGOX – Bitcoin’s darkest corner, and the story that won’t quite flush away is back on everyone’s lips once more thanks to its similarities with Bitfinex. While Bitfinex has been very clear about its business being in good health, it’s hard to ignore how its current situation resembles the last days of MtGOX. Following last year’s catastrophic theft of nearly $65m in Bitcoin, Bitfinex has been fighting rumours of its impending collapse. Now that its unable to avail customers of their dollars, it’s not in a good position to offer reassurance. However, they did issue a statement on their website last week stating unequivocally, “we want to be absolutely clear here that Bitfinex is solvent.” Furthermore, the exchange has been praised for the way it handled the stolen coins, reimbursing its customers with a digital asset called tethers, apparently backed with US dollars. However, dissenting voices on Reddit are now revealing that Bitfinex’s small print renders the tokens worthless, citing this clause from their terms:
Tethers are not money and are not monetary instruments. They are also not stored value or currency. 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, sell, or redeem Tethers.
China doesn’t want your dollars, either
It’s not just Bitfinex that’s having banking problems. OKCoin and BTC-e have both reported banking issues this month resulting in wire transfers in US dollars being unavailable. BTC-e reported that their issue was caused by moving to a new bank account, while sources local to OKCoin attributed their problems to ongoing discussions with the People’s Bank of China and other financial regulators. Of course, we can’t verify the validity of these claims, but changing bank accounts? Really? And I suppose their dog really did eat their homework…
So what or who is driving prices?
At the time of writing, the Bitcoin price on Bitfinex is at an all-time high of $1,411, some $100 higher than its competitors, and $130 higher than OKCoin. How is this even possible? It seems to be a strange side effect of the withdrawal of wire transfers. It seems that because customers can’t access their fiat currency balances through the exchange, they’re buying BTC. Which figures, since they could move the BTC to somewhere that still operates wire transfers. Some sources are also suggesting that investors are taking advantage of the price hike by dumping Bitcoins to buy back later.
I’m going to be watching this space very closely, and if I were you, I’d be doing the same. While Bitfinex has been very clear about its position, the evidence does not look solid. A $65m shortfall in assets that’s plugged by a worthless token (should they deem it so) has to come unravelled at some point. It seems extremely unlikely they can plug a hole that size simply from their operating profits. I have a feeling we’re going to be hearing a lot more about this in the weeks to come. So, until then, be careful out there.
This article represents the personal opinion of the author and is not a recommendation to buy or sell Bitcoins.