Weekly Roundup: BTC Less Volatile, Bitfinex Claimed Insolvent, Tether Woes
Last minute update: during the writing of this article, BTC encountered an upswing of over $100, finally breaking it out of the $6,600 high mark it had been stuck in for the past week. In this week’s edition, we examine the surprisingly calm nature of bitcoin’s price in recent weeks, present a few reasons as to why this may be happening (and why its not necessarily a bad thing), we talk about recent accusations being hurled at long-standing bitcoin exchange Bitfinex, why their association with the stablecoin Tether is causing them trouble, and why a collapse inside Tether’s management could lead to some extraordinarily negative effects for the whole of crypto.
Bitcoin Volatility at Lowest Levels in 17 Months
For the past 2 weeks, the price of BTC has experienced something it is not usually familiar with: calmness. While BTC did end September on a down note, it really wasn’t by very much, and during October it’s moved less than 3%, which is shockingly steady for the mother of all cryptocurrencies. For a second week in a row, bitcoin refused to budge very far in one direction or the other, with its average intraday volatility now at its lowest point since May 2017 and its trading range the narrowest its been since July 2017. On a positive note, BTC is still up close to 6% during the last 30 days, perhaps finally signaling that the worst of 2018 is now over.
The history of bitcoin has been largely marked with volatility, sometimes swinging 10% or more in direction during the course of a day. This renders it a more volatile currency than just about any other on earth and is thought to be one of the main reasons behind the SEC’s reluctance to approve a Bitcoin ETF. BTC’s trading range has tightened thus far in October, for the most part staying between $6,500 and $6,600 a coin. This is thought to be due to a slow news cycle and low trading volume, which means that investors are staying on the sidelines and are not particularly compelled to move in one direction or another. Perhaps they are now waiting for the outcome of the SEC’s review of their rejection of 9 different Bitcoin ETF proposals, for which they recently set a deadline of November 5th.
While boring for traders who are used to making money when the market is moving in one direction or another, a lull in wild price movements can be taken as a sign of bitcoin’s increased maturity, and perhaps even that price manipulation is finally slowing down. As bitcoin becomes more dispersed, held by more and more players and tradeable on more exchanges worldwide, price manipulation becomes harder to attempt, because arbitrage opportunities (buying BTC at a lower price on one exchange and selling it at a higher price on a different one) begin to open up and become more easily exploitable. This prevents the likelihood of a single party being able to drastically raise or lower the price of bitcoin as there are too many other parties looking to buy low or sell high. The newest wave of trading bots is now focused on manipulating potential arbitrageurs as more classical bots which use simple “buy” and “sell” instructions are no longer as profitable as they once were.
Critics Slam Bitfinex for Refusing to Process Withdrawals
Launched in October 2012, Bitfinex is not only one of the oldest cryptocurrency exchanges still in existence, it is also one of the biggest, processing over a quarter billion dollars in trades every day. However, it has not achieved long-lasting success without its fair share of controversy, the most recent of which takes the form of a scathing, well laid-out Medium post in which an anonymous critic claimed it was insolvent and that users should withdraw funds from the exchange immediately. In their post, the author listed a myriad of reasons as to why Bitfinex should no longer be trusted with user funds, citing evidence of problems with backing bankers, failure to address user withdrawal issues, and ongoing problems created by its long-standing association with Tether (USDT), which is also long-rumored to have solvency problems of its own.
After other such allegations began swirling around the media, Bitfinex quickly responded with an impassioned rebuttal, publishing addresses to storage wallets belonging to the exchange as evidence that they were not in any danger of being insolvent, and on September 27th, made this announcement via their Reddit channel in order to help quell user fears about ongoing problems regarding withdrawals:
As I have recently been contacted by many of you with regards to delays in fiat deposits and withdrawals for your Bitfinex accounts, we have decided to open a separate thread so that we can keep all similar matters in one place, making it easier for everyone to followup on them…
I would like to address our sincere apologies for the inconvenience and to assure you all that we will soon release a statement, meant to help you all get a better understanding on how and why such delays happen from time to time. The reasons may vary from cases to case so I will do my best to get the right answer for each and every one of you.”
User complaints on Bitfinex’s subreddit are numerous, with one user claiming to have over $120,000 stuck in the withdrawal process for over 30 days. Some complaints are being actively deleted by Reddit moderators while others are going ignored, fueling speculation that Bitfinex was unable to muster up the funds to process such withdrawals, or at least delaying them until the last moment in favor of processing withdrawals from larger commercial partners first.
The Tether Connection
Tether, whose CEO is the same as that of Bitfinex (Jan Ludovicus van der Velde) is the world’s 8th biggest cryptocurrency by market cap, currently sitting with a valuation slightly over $2.8 billion. This would infer that, as per Tether’s claim and as mandated by several federal regulatory bodies, Tether has $2.8 billion in cash reserves – a claim that has proven itself to be unauditable over the last year. Another claim long assumed was that Tether the company would always honor requests to exchange USDT for dollars at a 1-to-1 rate of exchange, which also has proven not to be the case, as Tether stopped honoring requests from non-corporate customers late last year.
Both Bitfinex and Tether were subpoenaed by the U.S. Commodity Futures Trading Commission in December 2017 likely over concerns that Bitfinex was actively manipulating the price of BTC by encouraging the deposit and printing of USDT, which may not have been backed by a corresponding equivalence in fiat reserves. Though long suspected of not actually having cash reserves on hand to back each tether printed into existence, the market continues to accept and behave according to the principle that each tether is indeed worth $1.00, $47 million worth of which are cashed out to US dollars via Bitfinex on a daily basis. The only other USD/USDT exchanger, Kraken, hosts an exceptionally smaller percentage of volume, processing only about $1.3 million of such transactions on a daily basis.
Selling just 3000 Tethers causes the price of Tether to drop to 96 cents. There is ZERO liquidity.
You can always count on the wash trading bots on Kraken to immediately execute a trade at the previous price to maintain the peg, and keep the illusion going. pic.twitter.com/mAFdSBMR49
— Bitfinex'ed 🐧 (@Bitfinexed) October 2, 2018
If there was a sudden run on Tether, however, in which a large portion of its holders wanted to cash out to fiat all at the same time, the price of tether would likely sink below $1.00 as there simply would not be enough buyers of USDT. The ability of tether to remain tied to the value of $1.00 would be destroyed, confidence in its abilities to carry out its purpose as a stablecoin would be shattered, and this could have a devastating ripple effect where tethers would be traded at a fraction of $1, potentially lowering the prices of dozens – if not hundreds – of cryptocurrencies. Therefore, many tether holders find themselves either holding on to the dollar-pegged token due to lack of cashout options or else reinvest their tethers into cryptocurrencies, though also not necessarily by choice.
Also in the News
- A U.K. money expert is suing Facebook over ads it ran for bitcoin investment schemes that turned out to be scams, claiming many people are becoming suicidal after losing their life savings to scammers inadvertently promoted by the social media giant. The plaintiff blames Facebook’s lack of diligence in performing background checks on the advertisers and is seeking millions of dollars in compensation to pay out families victimized by bitcoin fraudsters.
- Financial media titans at the Wall Street Journal have launched their own cryptocurrency, dubbed WSJcoin, in a largely educational effort to help their readers better understand the inner-working of cryptocurrency.
- The creator of BitTorrent, the famous and widely-used torrenting service, is planning on creating his own environmentally-friendly cryptocurrency, hoping to learn from the many mistakes of bitcoin when launching a currency governed by peer-to-peer software. Bram Cohen, who designed the BitTorrent protocol noted that the Proof of Work system employed by bitcoin consumes a tremendous amount of energy in order to function and wants to create a new system that rewards its users for “amassing disk storage space, not running more powerful and energy-hungry hardware.”
- The Motley Fool, an online finance-based publication, has never been a particular fan of bitcoin, so it was surprising when they published a list of “10 bitcoin basics” that every crypto investor should be aware of, an article that was largely favorable of BTC. It concludes its passive endorsement by remarking that bitcoin had “established itself as a key technology,” perhaps signaling to its audience that it was finally ready for prime time investments.
- During a surprisingly civil debate between two blockchain heavyweights, Litecoin (LTC) creator Charlie Lee made a breakthrough with Bitcoin Cash (BCH) champion Roger Ver, getting him to finally see the point why many bitcoin enthusiast had taken offense to his constant reference of “Bitcoin” as “Bitcoin Core” (a term never used for BTC previous to the BCH fork). Lee politely reminded Ver of his own distaste for BCH being referred to as “Bcash” (a term first invented by Bitfinex to help users differentiate between BTC and BCH) and asked him if he would stopped referring to bitcoin as “Bitcoin Core,” a suggestion which Ver agreed, vowing to refer to it as BTC in future communications with the public. Whether or not Ver will change his habits going forward remains to be seen as his belief that BCH is “the real bitcoin” remains unwavering.