Category Archives: bitfinex

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Report Cites Record Exchange Transaction Volumes in 2018

Report Cites Record Exchange Transaction Volumes in 2018

The latest Diar report shows that 2018 was a record year for cryptocurrency transacting volumes with huge increases across most major exchanges.

The report states that in the US markets, crypto exchanges such as Kraken and Bitfinex led the way in 2018 with increases of 192% and 50% respectively. San Francisco-based giant Coinbase also showed significant trading increases with a rise of 27% over 2017 trading. Coinbase reported a hike in trading from 82.7 million deals over the year to 94.4 million.

However, Diar predicts a drop off in 2019 spot markets to below the 2017 level despite increases of available cryptocurrencies on the market. In terms of mining activity, Bitcoin miner revenues were also on the up, according to the report, earning a huge USD 5.8 billion in 2018. This, despite monthly figures slumping by 83% over the course of the same year.

Diar commented on the changing face of cryptocurrency mining, indicating that many companies have shifted to operating large numbers of small mining pools rather than larger operations, as a protection against attack. The report stated:

“Unknown miners closed December having solved a whopping 22% of the total blocks up from 6% at the start of last year. The Bitcoin network is currently less likely to experience an attack given the fact the BTC.com controlled pools have lost dominance over the network.”

Another significant factor regarding the direction of the market is that high liquidity OTC transactions are finding greater favor among investors compared to physical BTC markets, reflected in Coinbase observing a 20% increase in BTC trade volume during OTC markets hours.

 

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Tether Reopens Direct USD Redemption

Tether Limited has announced that it has re-enabled direct redemption of its native token USDT for US dollars through its own wallet. It expects this to help stabilize the price of USDT after two months of volatility. This announcement is due to the new banking relationship between Tether Limited and Deltec Bank in the Bahamas.

Tether (USDT) is currently the top stablecoin with a market cap in excess of USD 1.8 billion and has the 7th highest cryptocurrency market cap overall.

Throughout most of 2018, the price of USDT was stable at parity with the USD, an optimal condition for a stablecoin. However, in early October 2018, USDT became unpegged from the USD and slid lower after severing ties with the Noble Bank of Puerto Rico. The average price of USDT across all cryptocurrency exchanges briefly dipped as low as USD 0.925 due to fears of insolvency. Since then, Tether has remained below parity with the USD and has been quite volatile. In this period, the circulating supply of USDT shrank from 2.8 billion to as low as 1.7 billion, indicating USD 1.1 billion of the tokens being redeemed.

Currently, USDT is hovering above USD 0.98 and continues to be volatile but the restoration of the direct USD redemption service should restore stability. There will be many companies and exchanges where USDT users can redeem and high volume traders could even redeem individually, which should restore the global arbitrage mechanism that previously kept USDT’s price stabilized. It will take some time for this to go into effect since users have to go through a verification process for redemption.

Soon, users will be able to acquire USDT through the Tether wallet as well for a minimum trade of USD 100,000. Withdrawal fees may cause USDT’s price to stabilize slightly below parity in the long term. That being said, Tether volatility should dissipate after this move.

 

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Gemini Dollar, TrueUSD, USDC, and PAX Surge Above Parity With USD as USDT Struggles

Tether (USDT), the #1 stablecoin with a market cap in excess of USD 2 billion, has been struggling recently due to banking problems at Bitfinex, and its price has dropped below parity with the USD. Simultaneously other stablecoins including the Gemini Dollar (USDG), True USD (TUSD), USD//Coin (USDC), and Paxos Standard Token (PAX) have surged above parity with the USD, indicating that people are exchanging their USDT for other stablecoins.

Through early October 2018, USDT maintained parity with the USD, and there were roughly 2.8 billion USDT in circulation. Then the USDT gradually declined to about USD 0.99, before 320 million USDT were redeemed and taken out of circulation. This perhaps caused a run on Tether Limited, possibly making redemption temporarily impossible and removing the backing of USD cash reserves, which is the primary mechanism that keeps USDT at parity with the USD.

The price of USDT crashed on 15 October 2018 to USD 0.925, and temporarily went as low as USD 0.87 on at least one exchange. The drastic price movement serves as strong evidence that there was no USD backing USDT at that time due to banking troubles. In general, people should be able to redeem USDT at parity for USD through Tether Limited, and would not sell USDT for less than 1 USD unless Tether Limited’s redemption process stopped working. The price of USDT recovered to USD 0.98 within a day of this crash, but then another 250 million USDT were redeemed and taken out of circulation, and now as of this writing on 17 October USDT’s price is slowly declining and approaching USD 0.97. Since the Tether crisis began, the USDT market cap has declined USD 600 million from USD 2.8 billion to USD 2.2 billion.

Traders and investors have clearly been shifting their holdings from USDT to several other major stablecoins that are available. The USDG which is run by the Gemini exchange briefly surged to a high of USD 1.19 on 16 October, TUSD spiked to USD 1.08, USDC run by Circle hit USD 1.11, and PAX reached USD 1.08. Since then these stablecoins have declined to a consensus of USD 1.02 to USD 1.03 as of 17 October. It is interesting to note that as of this writing these stablecoins are 2-3 cents above parity with the USD, while Tether is 2-3 cents below parity with the USD.

While people who were holding TUSD, USDC, PAX, and USDG before the stablecoin rally began might have made some profits, it is probably not a good thing that these stablecoins are not at parity with the USD, and is just as bad as USDT being below parity with the USD but for different reasons. First off, stablecoins are backed by cash reserves stored with the company that runs them, so any excess above parity with USD is not redeemable for cash. Therefore, if someone buys a stablecoin that is above parity with the USD, long term they will lose that excess above parity as the stablecoin heads back to parity. For this reason, traders and investors would be cautious to invest in a stablecoin for any price above USD 1, since they know they would end up losing some money long term once the stablecoin market stabilizes.

For the time being, as USDT continues to struggle and decline further from parity, traders and investors will be shifting money from USDT to other stablecoins in rapid fashion, lifting those stablecoins above parity with USD. Traders are probably directly trading their USDT for other stablecoins, and there is far more USDT in circulation than the supply of all the other stablecoins combined. Long-term, stablecoins will go back to being at parity with the USD, whether that comes from Tether regaining its footing and going back to parity or completely unwinding to zero remains to be seen.

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Bitfinex Launches Distributed Banking Solution for Fiat Deposits

Bitfinex, the largest USD to Bitcoin exchange in the world, has been making headlines recently with their banking troubles. Fiat deposits on Bitfinex were officially halted for about a week, while simultaneously the Bitfinex subreddit is filled with complaints that fiat withdrawals are not functioning correctly, even though Bitfinex says fiat withdrawals never stopped working. Bitfinex launched a new distributed banking solution on 16 October 2018 and has restarted fiat deposits for USD, GBP, JPY, and EUR.

With the new system, users initiate a request to deposit fiat, specifying the exact amount of fiat they wish to deposit. The user’s account is then reviewed, and then they receive a deposit notification telling them where to deposit the fiat. The user then deposits the fiat, which is processed in 6-10 days. The minimum deposit is USD 10,000, and there is a deposit fee of 0.1%.

This distributed banking solution for fiat deposits sounds similar to the method used by Bitcoin dealers on LocalBitcoins for many years. Large Bitcoin dealers generally have accounts with multiple banks, often under many different names, and they tell their clients where to deposit fiat on a case by case basis. This sort of system is done to distribute deposits between banks so that the load on each bank account is minimized. If a Bitcoin dealer uses the same bank account for every deposit they usually have their accounts shut down since a huge volume of deposits from many different people is suspicious to the bank.

Bitfinex is the largest USD exchange in the world, so even if they distribute fiat deposits between numerous different banks, the volumes in each bank will likely be high enough to raise suspicions. This system might work for a temporary period at each bank, but there is a large risk of Bitfinex’s bank accounts getting closed sporadically. It seems Bitfinex is removing risk for themselves by putting a 6-10 day wait period to approve a fiat deposit, but that certainly does not remove the risk for their customers who could end up getting deposits stuck in limbo if the bank they deposit to freezes the bank account.

Bitfinex seems to welcome the challenges that will come from dealing with banks like this, saying “We believe this system to be significantly more durable in the face of sustained attacks by our competition and their supporters. Ongoing campaigns against us will only result in our company becoming stronger and better”. This is the same sort of attitude that Bitcoin dealers have when dealing with banks. Generally, as Bitcoin dealers lose bank accounts, they simply add more bank accounts under different names, generating a prolific underground network to send and receive fiat. It seems Bitfinex is on track to doing something like that.

This distributed banking solution launched by Bitfinex is certainly not ideal. It is better for a crypto exchange to have a solid banking relationship with a single bank, rather than trying to circumvent the system with many banks. Coinbase processes fiat deposits and withdrawals relatively quickly when compared to Bitfinex since it is compliant and follows all regulations. This makes the customer experience much less stressful and more efficient on Coinbase versus Bitfinex. Generally, the longest a fiat deposit or withdrawal should take is 3-5 days with ACH, and Bitfinex’s deposit system is much slower than that.

The price of Bitcoin on Bitfinex continues to be more than USD 300 higher than on Coinbase and Bitstamp as of 17 October 2018, suggesting that arbitrage mechanisms are not working. This indicates that fiat functionality on Bitfinex continues to be inefficient, since if it was efficient then arbitrage traders would bring Bitfinex’s Bitcoin price down to the global market price.

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Tether Becomes Untethered to USD While Bitcoin on Bitfinex Surge USD 1,000 Above Global Market Price

Bitfinex, the biggest USD to Bitcoin exchange in the world, has been having serious banking troubles recently. First, it was revealed that they had severed ties with their primary bank, the Noble Bank of Puerto Rico, while simultaneously they were keeping the exchange running via a private account at HSBC. Then Bitfinex halted all fiat deposits, indicating that they had perhaps lost functionality in their bank account. Now prices of Bitcoin on Bitfinex have surged to a premium of USD 1,000 versus the global market, and the Tether (USDT) stablecoin which is intimately tied to Bitfinex has seen prices crash well below parity with USD.

The #1 stablecoin, USDT previously peaked at a market cap of USD 2.8 billion. However, USD 320 million worth USDT has been removed from circulation, which is something that could only occur via the redemption process where USDT is directly exchanged for USD via Tether Limited. On 15 October 2018, the price of USDT crashed to as low as USD 0.925, far below parity with the USD, removing another USD 80 million from USDT’s market cap in the process. The only way this makes sense is if Tether’s redemption process has begun to fail, perhaps due to the USD 320 million of USDT redemption in the past week causing a run on their bank. It is nonsensical that anyone would sell USDT so far below the value of the USD unless it is no longer backed by USD at this time.

Simultaneously, the price of Bitcoin on Bitfinex surged to as high as USD 7,700 on 15 October, while the price on Bitstamp and Coinbase was USD 6,700. This is a USD 1,000 premium or 15%. At this time the disparity has relaxed a bit to USD 6,950 on Bitfinex and USD 6,420 on Bitstamp, a USD 530 premium or 8%.

This would suggest that the mechanism of global arbitrage has failed and that Bitcoin cannot be sold easily for fiat on Bitfinex anymore, which suggests fiat withdrawals are no longer working. Users are choosing to buy Bitcoin at a high premium on Bitfinex to get their money off the platform. Something similar happened when Mt. Gox collapsed, which was the biggest USD to Bitcoin exchange during the early days of Bitcoin. The Bitfinex subreddit is filled with complaints that fiat withdrawals are not working.

Despite all of these market and community indicators which suggest the Bitfinex situation is rapidly worsening, Bitfinex released a statement on 15 October declaring that all fiat withdrawals are working fine and fiat deposits will be working by 16 October.

Fiat deposit update – October 15th, 2018. https://t.co/F8o2ltVCN4 pic.twitter.com/ukE9JsRB0j

— Bitfinex (@bitfinex)