Are legitimate ‘institutional investors’ really coming onto Bitfinex’s platform? I don’t think so.

A common thing we keep hearing from Bitfinex is “big money” and “Institutional Investors” are coming. Big rich hedge funds and institutions with lots of money are tripping over their shoelaces to send their money to Bitfinex, a platform that has seized 36% of customers deposits in the past, to buy Bitcoin before it goes to $10,000 per BTC or $100,000 per BTC.

There are Institutional Tether customers that have their own bank accounts in Taiwan that are able to make an internal transfer to their Tether accounts, hence the new Tethers created
- Bitfinex

What’s very interesting is, this is what Bitfinex tells you when you try to withdraw US Dollars…

FUD! Bitfinex is not Tether and Tether is working fine!

Well, about that.

I want you to think about this for a second.

You are an institutional investor with tens, no… HUNDREDS of millions of dollars, and you want to get in on Bitcoin!

How would you go about it?

  1. Buy Bitcoin from an OTC trading firm, or daily Bitcoin auction though something like Gemini.
  2. Buy Bitcoin by sending money to exchanges such as Bitstamp, Kraken, if you’re non-US, or Coinbase/GDAX/Gemini if US based… which all have far better reputations than Bitfinex.
  3. Buy hundreds of millions of dollars of unbacked Tethers, to send them to Bitfinex, in order to THEN buy bitcoin…

“Institutions are coming!” We have heard this before from Bitfinex, and it was not true.

Back in 2014, I became acquainted with Phillip Potter and had the opportunity to ask him a lot of questions about his exchange. That conversation revealed all kinds of answers from the horse’s mouth. He would regularly inform us about so called “institutional investors” coming in to buy Bitcoins during bull markets, and then completely disappear during bear-markets except for those 12–18 times Bitfinex lagged so hard during volatility that investors lost money due to not being able to log in for several hours and, in the mix, got margin-called out of their positions

Source (Archive)

Bitfinex needs an excuse to explain the rapid rise of the price of Bitcoin since they were cut off from traditional banking, and a rally that only started the very day Bitfinex started having their wire transfers rejected.

Privileged traders likely knew about banking problems while customers were in the dark.

The facts are that they’ve been hacked, they lost a significant amount of their Bitcoins, they lost banking because they repeatedly engaged in banking shenanigans which banks are rightfully wary of, they filed and withdrew their lawsuit against Wells Fargo within days… they’ve conducted a hastily executed and legally questionable “BFX Token” issuance to depositors, among other things.

Stuff like this would send institutions running away from Bitfinex, not tripping over their shoelaces to deposit their money.

An institutional investor that is interested in Bitcoin, is going to use another platform where they don’t have to create a shell account or buy worthless Tethers first, in order to buy Bitcoin, like the US based exchanges or Bitstamp or Kraken for non-US institutions.

Or they might invest in an exchange such as Coinbase, which recently raised $100M, and while they have scandals on their own, none of them can hold up a candle to Bitfinex.

They aren’t creating shell bank accounts in Taiwan to buy Tethers to send to Bitfinex to buy Bitcoin. That’s ridiculous.

Bitfinex admits defeat with re-establishing normal banking relationships

On August 11th, 2017, Bitfinex announced that they are suspending services to US individuals.

We have, for some time, considered pulling away from the retail marketplace in the U.S., and now with a current backlog of verification requests and ongoing difficulties in providing USD deposit and withdrawals for U.S. individuals, we feel that the time has come to begin disengaging from U.S. retail customers.

Furthermore, over the next 90 days, we will be discontinuing services to our existing U.S. individual customers. We will be communicating further with affected users on timing and specifics. Our intention is to reduce disruption as much as possible for our U.S. customers.

Source (Archive)

A dramatic price rally just prior to Bitfinex exiting US marketplace

I have mentioned multiple times my belief that Bitfinex leaks valuable information to privileged traders. This is likely yet another case of that.

Bitfinex did not suddenly decide, on August 11th, “Screw this, we’re not supporting US Individuals any more!”.

It was something that was in the works for possibly a few weeks. It’s reasonable to believe that people in management knew they were going to abandon the US market before everyone else and they could have been trading on this.

Bitfinex is still unable to send US customers their money in any reasonable fashion, and that’s one of the reasons why they are abandoning the US market.

Which means… in order for a US individual to get their money off of Bitfinex, in a reasonable time frame… they must buy Bitcoin with the dollars they have on the platform, now at highly inflated prices.

Just like knowing about the lack of access to banking was valuable back in March, and people in the know possibly traded on that information prior to any public announcement. Don’t forget that Bitfinex knowingly dragged their feet on informing their customers.

Side-note: If you were an unfortunate customer of Bitfinex, and selling your Bitcoin in order to buy a house or a large purchase, and the exchange knew they could not send you the USD, you paid fees for a service which they knew they could not perform, and you had no way of knowing because they did not inform customers for weeks.

And then, you paid fees again when you had to buy Bitcoin again to withdraw and sell on another exchange… and pay fees again.

Exactly one week prior the announcement on August 4th 2017, we see a massive spike that is unexplained, and a continuous rally with no corrections.

Massive jump in prices on Friday, August 4th, 2017

Privileged traders likely knew about the upcoming change in policy, infer that US individuals who want their money any time soon would have to buy Bitcoin, which inevitably drive the price of Bitcoin up, and they would then buy Bitcoin ahead of time to further profit from unfortunate Americans that now have to get out.

Price reaction immediately after bad news

18:12 UTC, for us Military types.

And the price goes WILD!

The way the price is moving up after arguably bad news is a sign in my opinion that we are witnessing the beginning of the next Mt.Gox.

You can’t withdraw US Dollars via Tether or normal channels in any reasonable time frame, and Tether will probably be next to announce they cannot serve US individuals, so you’re forced to buy Bitcoin.

We have seen this pattern before.

  1. Exchange gets hacked, loses significant amount of Bitcoin
  2. Starts engaging in funny business (BFX Tokens, 36% seizure of all accounts, BFX token ‘redemption’ which just gave most people ‘shares’ in BFX and money they cannot realistically withdraw in real USD)
  3. Cut off from traditional banking and only way out is Bitcoin.
  4. Absolutely massive price rally bringing in massive media attention and hype…
  5. 💥

In 2013, we had the Mt.Gox WillyBot buying Bitcoin with non-existent dollars.

In 2017, we have Bitfinex, Tethers, Spoofing, and Wash Trading… with quite possibly non-existent dollars, or possibly car wash tokens masquerading as US Dollars.

Price manipulation can help to discourage people from selling their Bitcoin, which buys them time to try and re-establish banking channels. The last thing Bitfinex wants is a rush of people that want USD.

On top of that, people will also ignore the problems because they think they’re making money as the price moves up so dramatically. If it keeps moving up several percentage points a week, these people are even less likely to sell.

People become blinded by their greed to obvious problems.

But this is too obvious…

Tether in circulation in 2017, Tether has not published any audits despite their claims to be professionally audited.

It’s not just US Banking. Bitfinex has not established banking with other fiat currencies either.

Bitfinex has had nearly five months to attempt to establish new banking relationships. US Dollars are not the only game in town.

There are literally hundreds of currencies Bitfinex could establish banking for, some they have actually talked about were Hong Kong Dollars, Swiss Francs, Japanese Yen, or even Euros. Hong Kong Dollars are pegged to US dollars and the conversion rates are very cheap.

Originally, that was one of the immediate options available to people.

Notably, we can process withdrawals in other currencies, namely, Hong Kong Dollars (HKD) and Swiss Francs (CHF). In addition, we expect to confirm the availability of Japanese Yen (JPY), Australian Dollars (AUD), and Canadian Dollars (CAD) in the next few days, and Euros (EUR) sometime next week. Different currencies have different conversion spreads at our bank, which vary between 0.20% and 0.50% from the interbank market. If you are interested in any of these alternatives, please contact support at
Source (Archive)

You mean to tell me that not only can they not get US banking back online, but they can’t get any traditional banking online anywhere?

To the best of our knowledge and belief, no entity in the Bitfinex group is being singled out by correspondent banks. We understand that Bitfinex is a victim of correspondent bank de-risking, targeting money service businesses (MSBs) in general and “virtual currency” exchanges in particular.

Bitstamp and Kraken have yet to have any sudden banking problems, Coinbase has banking, Gemini has banking (albeit they have changed banks once as far as I know), so I wonder if it’s something Bitfinex was doing, or is doing, that gives major banks pause.

It’s a historical fact that they lost their banking relationships after the hack and BFX token creation, and Phil Potter admitted on interviews that their BFX tokens were in fact a problem with getting audited, and a problem with re-establishing new banking relationships.

That’s why they retired them suddenly four days after they were formally informed by Wells Fargo that they will not be resuming services.

Bitfinex, and Tether, were in full blown panic mode.

Bitfinex Lawsuit against Wells Fargo
Information shared by Bitfinex
Information shared by Bitfinex

BFX did not pay back significant majority BFX tokens. Tokens were converted into equity, otherwise known as a full blown bail-in.

Bitfinex has actually admitted to this, but they have not supplied complete numbers. Let me show you how impossible it was for Bitfinex to have fully repaid the BFX tokens.

First, we need to figure out how much money they make.

Bitfinex financials

From January to July 2016, Bitfinex reported a total of $7.09 million in trading fees.

To estimate their trading fee revenue going forward, I have taken trade volume in USD terms from January of 2016 through July 2016 against their reported volume to figure out the average rate in the past.

We get an average rate of 0.08% based on this data. Which is perfectly in line with their fee structure.

Bitfinex fee structure

Now, let’s figure out their trading fees from August 2016, until April 3rd when they ‘paid out’ their BFX tokens.

Estimated trading fees from August to April 2017

While this does not include trading fees from other altcoin pairs, or margin fees, it also does not include the fact that they have operating expenses. Even if you wanted to be generous and presume they made four times as much money, it’s still not enough to pay back all of the BFX tokens.

And they did likely pay out at least $7.8M USD in BFX token redemptions, it would be interesting to find out if they paid these back with the 36% of the USD they confiscated from depositors, and the rest is equity conversions.

Disclaimer: These numbers are estimates.

The reality is the people who have converted their BFX tokens into shares of Bitfinex, have not actually been paid back anything, yet.

In any case, they would have been way better off holding their Bitcoins off of Bitfinex.

Are big money’ed institutions, itching to get exposure to bitcoin, going to make the same mistake as previous customers of Bitfinex? I highly doubt it.

But wait, Bitfinex has record volumes? It must be new institutions getting in on Bitcoin. FUD!

Their volume may be at record levels, but… it’s the same Bitcoins moving back and forth between accounts repeatedly, possibly with wash trading.

24hr stats on August 13, 2017

And then the next problem is the margin long debt cycle, as the same US dollars can repeatedly be loaned out to margin long more Bitcoin. If margin shorts were being wash traded, nothing says that margin longs can’t be wash traded as well.

  1. Margin Buy
  2. Seller has USD
  3. Seller offers USD for loan
  4. New margin buy funded from Sellers USD loan offer.
  5. GOTO 2;
Skyrocketing margin debt

Trade carefully.




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Blog for @Bitfinexed on Twitter. Exposing possible fraud by largest Bitcoin exchange, Bitfinex/Tether