An announcement by one of the world’s largest bitcoin exchanges has stoked fears another Mt Gox-style meltdown may be brewing.
The largest bitcoin exchange by US dollar volume in recent weeks, Bitfinex revealed today it will be unable to accept incoming wires starting tomorrow, a statement that comes after it disclosed late last week that it was experiencing delays in US dollar withdrawals.
The exchange said in a statement today:
“Beginning 18th April, all incoming wires to Bitfinex will be blocked and refused by our Taiwan banks. This applies to all fiat currencies at the present time.”
Notably, Bitfinex didn’t offer any details as to why the banks – the subject of a previous wire transfer dispute that began earlier this month – will not accept the transfers. (The exchange ultimately went to court over the decision, but withdrew its lawsuit one week later.)
While Bitfinex is said to now be working on solutions to its banking issues, market observers are suggesting cause for concern.
Jacob Eliosoff, cryptocurrency fund manager, spoke to the general reaction that this situation has so far provoked, discussing how the resulting freeze in withdrawals could create abnormal pressures in the market.
“This is a dynamic many of us remember from the Mt Gox days when there were problems with fiat withdrawals,” he said. “Investors responded by converting fiat they had on the exchange to bitcoin so they could withdraw it. [In other words], they buy bitcoin to withdraw, pushing up the price on the exchange.”
Eliosoff went so far as to state that some market observers could perhaps view this as an opportunity for arbitrage, using it as an excuse to deposit bitcoin in order to sell at the high price and buy the bitcoin back again.
Charles Hayter, founder and CEO of CryptoCompare, provided a similar sentiment.
“The hiatus [of] Bitfinex’s banking facilities have led to a rush by some to extricate their bitcoin from the exchanges,” he told CoinDesk.
Widening exchange spreads
Because of these developments, exchange spreads have widened, with Bitfinex enjoying a more than $50 premium in some cases at the time of report, according to data from CryptoCompare.
Bitcoin was trading at roughly $1,235 at 18:55 UTC on Bitfinex, compared to roughly $1,185 on Bitstamp and $1,190 on GDAX.
The spread harkens back to the final days of Mt Gox, when data showed the exchange consistently traded between 10% and 26% above its competitors.
While analysts voiced their concerns, they were optimistic that Bitfinex would emerge from this situation unscathed.
The victim of a hack last August, Bitfinex has shown a propensity to bounce back from operational difficulties. After losing nearly $65m in customer funds, it would go on to “socialize” losses among exchange users, using a new cryptographic token to credit customers.
The system would later win praise from supporters, who saw it as a creative way to avoid bankruptcy and pay back users.
Hayter offered similar input, emphasizing that Bitfinex has a “solid” reputation. “The hope is this will be dealt with in a timely and professional manner,” he said.
Eliosoff concluded:
“The big picture here is that these operational hiccups are still common in the space.”
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