Warning Signs About Another Giant Bitcoin Exchange

Phil Potter is the chief strategy officer of Bitfinex, an unregulated virtual currency exchange. Its size and impact worry even advocates of virtual currencies.CreditChristopher Goodney/Bloomberg

Warning Signs About Another Giant Bitcoin Exchange

SAN FRANCISCO — As the price of Bitcoin has soared, the virtual currency has edged toward the mainstream.

Square, the fast-growing payments company run by the Twitter co-founder Jack Dorsey, has begun selling Bitcoins to ordinary consumers, and the Chicago Mercantile Exchange will soon allow banks to trade on the value of Bitcoin.

But if you want to see where the price of Bitcoin is actually determined in round-the-clock bidding, you have to go to a number of unregulated exchanges that often fly in the face of American and European laws.

These days, no exchange is bigger than Bitfinex, an opaque operation that provides no information on its website about where it is or who operates the company.

Bitfinex, which is officially incorporated in the British Virgin Islands, has been fined by regulators in the United States and cut off by American banks, and it has lost millions of dollars of customer money in two separate hackings, leading critics to question whether it even has the money it claims to hold.

In the latest blow, on Tuesday, an alternative virtual currency that is owned and operated by the same people as Bitfinex, known as Tether, announced that it had been hacked and lost around $30 million worth of digital tokens.

None of that has been enough to stop customers from pumping billions of dollars worth of virtual currency trades through Bitfinex in recent weeks — on some days, the exchange claimed to be doing more trades, by dollar value, than some stock exchanges in the United States.

Even many people who believe in virtual currencies worry that the mixture of loose controls and booming trading at the world’s largest exchange is likely to cause trouble for all the investors piling into virtual currencies, even those who don’t go near Bitfinex.

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On some days, Bitfinex claims to carry more transactions, in dollar volume, than major stock exchanges.Credit

 

“I’m worried about the systemic risk that this centralized company poses, and I’m worried that if they go down, they will take down the space with them,” said Emin Gün Sirer, a computer science professor at Cornell University, who has a track record of successfully predicting problems in the growing virtual currency industry.

The chief executive of Bitfinex and Tether, Jan Ludovicus van der Velde, said in an email on Tuesday that “the financial position of the company has never been stronger.”

Concerns over virtual currency exchanges are nothing new. The first and largest Bitcoin exchange, Mt. Gox, collapsed in 2014 after losing $500 million of customer money to hackers.

This year, law enforcement took down another large Bitcoin exchange, BTC-E, which was accused of being a way station for many of the Bitcoin flowing through online black markets and ransomware attacks.

Regulators in the United States and a few other countries have tried to tame the business, and the largest exchanges in the United States and Japan are now under official oversight.

Those regulated exchanges, though, are dwarfed by unregulated ones like Bitfinex and several that have popped up in South Korea, where regulators have been slow to act.

The liquid nature of the Bitcoin markets, flowing around national borders and laws, is a product of the virtual currency’s unusual structure. Bitcoin is stored and moved through a decentralized network of computers that are not under the control of any single company or government.

 

Author: Nathaniel Popper Nov. 21, 2017

 

Posted by David Ogden Entrepreneur
David Ogden Cryptocurrency Entrepreneur

David – http://markethive.com/david-ogden

China Is Said to Ban Bitcoin Exchanges While Allowing OTC Trades

China Is Said to Ban Bitcoin Exchanges While Allowing OTC Trades

China Is Said to Ban Bitcoin Exchanges While Allowing OTC Trades

  • Order comes amid a broader clampdown on financial risk
  • China is home to nearly a quarter of world’s bitcoin trades

China plans to ban trading of bitcoin and other virtual currencies on domestic exchanges, dealing another blow to the $150 billion cryptocurrency market after the country outlawed initial coin offerings last week.

The ban will only apply to trading of cryptocurrencies on exchanges, according to people familiar with the matter, who asked not to be named because the information is private. Authorities don’t have plans to stop over-the-counter trading of virtual currencies, the people said. China’s central bank said it couldn’t immediately comment.

Bitcoin slumped on Friday after Caixin magazine reported China’s plans, capping the virtual currency’s biggest weekly retreat in nearly two months. The country accounts for about 23 percent of bitcoin trades and is also home to many of the world’s biggest bitcoin miners, who confirm transactions in the digital currency.

“Trading volume would definitely shrink,” said Zhou Shuoji, Beijing-based founding partner at FBG Capital, which invests in cryptocurrencies. “Old users will definitely still trade, but the entry threshold for new users is now very high. This will definitely slow the development of cryptocurrencies in China.”

While Beijing’s motivation for the exchange ban is unclear, it comes amid a clampdown on financial risk in the run-up to a key Communist Party leadership reshuffle next month. Bitcoin has jumped about 600 percent in dollar terms over the past year, part of a broad surge in virtual currencies that has fueled concerns of a bubble. The People’s Bank of China has done trial runs of its own prototype cryptocurrency, taking it a step closer to being the first major central bank to issue digital money.

“There has been a general tightening of the screw on regulating financial and monetary conditions,” said Mark McFarland, chief economist at Union Bancaire Privee SA HK in Hong Kong. “All of these things suggest a longer term process of tightening scrutiny of activities that aren’t in the normal sort of monetary realm.”

China Is Said to Ban Bitcoin Exchanges While Allowing OTC Trades

OKCoin, BTC China and Huobi, the country’s three biggest bitcoin exchanges, said on Monday that they hadn’t received any regulatory notices concerning bans on cryptocurrency trading. All three venues reported transactions on Monday, with bitcoin rising 6.3 percent on OKCoin as of 11:56 a.m. local time.

While bitcoin users will still be able to trade cryptocurrencies in China without exchanges, the process is likely to be slower and come with increased credit risk, analysts said.

The exchange ban is unlikely to have a major impact on the prices of cryptocurrencies because venues outside China will continue trading, according to FBG Capital’s Zhou. The country’s role in the bitcoin market had already started shrinking in recent months as authorities tightened regulation. At one point, exchanges in the country accounted for more than 90 percent of the world’s bitcoin transactions.

The bigger risk for global bitcoin traders may be the massive rally in prices, according to McFarland.

“Whenever you start to hear about Hong Kong taxi drivers becoming millionaires from buying bitcoin, you start to think this is not necessarily driven by fundamentals,” he said. “So you will get quite substantial pullbacks at some point.”

 

Bloomberg News
11 September 2017, 05:36 BST
— With assistance by Steven Yang, Gary Gao, Yinan Zhao, Yuji Nakamura, Lulu Yilun Chen, Justina Lee, and Eric Lam

 

Posted by David Ogden Entrepreneur

David Ogden Cryptocurrency Entrepreneur

David – http://markethive.com/david-ogden