Bitcoin Forum

Just thought it may be interesting for some to see the first financial statements of Bitstamp Ltd. Not much in them, since they've chosen to file the abbreviated accounts.

They made a profit after tax and salaries of $833,430 * and noted impressive cash balance of $65,667,026 (I reckon it includes customers' deposits).

Here's the Balance Sheet:

http://i58.tinypic.com/2lu9tzc.jpg


EDIT:

* Since no income statement is presented, I assumed that profit equals "profit and loss account" reserve shown in the Balance sheet, but that wouldn't be correct if they paid out any dividends.

They need an audit. They're not entitled to the "small company exemption" with assets of US$64 million. Here's the "Companies Act" (http://www.legislation.gov.uk/ukpga/2006/46/part/15/chapter/1/crossheading/companies-subject-to-the-small-companies-regime) section to which they refer. They may be able to claim that they were a small company in 2012, and get a year after becoming a large company in 2013 to comply. For 2014, they need a full audit.

Also, an annual statement normally contains both a statement of operations and a balance sheet. They just have a balance sheet, and one with too little information. All their liabilities, including customer deposits, are consolidated into one number.

This is worthless.

I'd like to know how much of that $65 million is frozen due to suspicion of illegal activities. If none, then I'd like to know more about Bitstamp's KYC/AML procedures, or lack thereof.

Thats the most abbreviated balance sheet I've ever seen.  What's the point of this?

I thought Bitstamp was in the UK? Why is their financial statement in dollars?

They may be entitled, if they have less than 50 employees (very likely) and turnover less than £6.5 million. The section of CA2006 quoted by you says:



As a small company they can choose to present abbreviated accounts (and they did) with very limited info.

What I'm wondering is whether company with such activity falls under FCA/PRA regulations...


UK law allows companies to present statements in their operational currency (for Bitstamp it's USD), they have to convert to GBP for tax purposes though.

Oh, got it, thanks.

Agree, worthless - why publish this at all, Bitstamp?
Doesn't add much to their credibility - in fact, subtracts from it.

What is the source of this document?

Companies House (UK)


Bitstamp didn't publish that. IMHO they should have prepared proper accounts (audited) and publish it, but they didn't.

What you see is an extract from the abbreviated accounts, which, by law, they have to file with Companies House every year. Such accounts are publicly available in CH (for a small charge).

Thanks for the clarification.
Then it's not Bitstamp's election, but a regulatory compliance report, correct?

Yes, it's a regulatory requirement. The thing is, they did the very minimum they were required by law. It would be very wise of them get proper financial adviser/auditor and also prepare the extended, full accounts (to be more transparent and credible).

They also had some issues with filing the papers on time. I hope that any of the newly appointed directors has some solid knowledge and experience in such things.

The state of assets is most worrisome.

servers... office equipment. what more do they need?

Agree, quite poor.
Statements dated Oct 2013 (almost a year ago) and not approved by their board until last month?
No income statement, or statement of cash flows.

In fact, that stinks.

It does not say how much profit they made.  It says only that, *as of Oct/2013*, they have about 64.9 M USD that belong to clients and about 820 k USD of their own.  Apparently it does not include their bitcoin holdings, since their assets (65.7 M USD) are described as "cash in the bank". 

I explained that in the first post. Look at the Profit and loss account reserve. It's their first period of trading, they started with P&L reserve being zero, so they made a profit of $833k, possibly more if dividends have been declared/paid.


Agree, these accounts should have been more clear. They couldn't just ignore the BTC holding tho, therefore it must have been included in 'cash in bank' position, which is not incorrect imho, despite the name 'cash...' it can also include cash equivalents.

They must surely have taken some profits out over that year.


If they did that, they took quite a bit of liberty in their reporting... 

They had to pick a price to convert BTC to USD, and on 2013-10-31 the price varied from 195.10 to 203.75.  Which one?  (OK, they are not required to say, apparently.)

Also it would be ironic for them to call the blockchain a "bank"  :D

Let's round the price to 200 USD/BTC.  Then, if that number includes the bitcoins, they held at most 330'000 BTC on that day, probably only some fraction of that.  Just for comparison, on that day, their trade volume was 13741 BTC, MtGOX's was 4608 BTC.   Hm...

Now bankrupt?

Don't think so. Even if they indeed lost 19000 BTC, the situation is manageable, if they have right people on-board.

They lost 5 million out of 65 reported here. Not enough to go bankrupt ;)
In an extreme scenario they could get more if they sold the company and the buyer would cover the loss.

They don't get to cover their losses out of customer funds. If they lost $5M, and they have less than $5M of investor capital available, they are bankrupt.

Remember that they are fees and they aren't a new exchange so they must have a lot of cash on the side. If they really lost only 5 million it shouldn't be a problem.

They only had ~800k equity.

According to http://www.coindesk.com/bitcoin-venture-capital/ they got 10 million dollars venture capital in october 2013.

And surely they have been using them, not sitting on them needlessly.  If any $$ are left, it must be reserves for payroll or other expected future expenses.

They are also not likely to leave profits sitting in the company's bank account.  They must have paid out most of the profits to investors, including themselves.  They cannot be forced to use that money to save the company (that is what "LLC" means), unless they have done something very wrong in the management of the company and are criminally prosecuted for it.

I doubt they have $5 million of their own cash profits sitting around waiting to cover this loss.

I don't think so too. If (!) they will recover the loss Bitstamp must use their own profit for the next few months to do so.

very good point. :)

it's no problem, indeed, the price only $260 now, 18,000BTC just $4,680,000, i think this is a piece of cake for bitstamp

It is possible that they could get some kind of capital infusion to help cover the theft (if in fact there was a theft). They still are profitable and have an established customer base. Even if someone were to give them 5.7 million dollars in exchange for a 50% stake in the company/exchange, that would only give it an effective price to earnings ratio of ~15 which is very small for this young of a company

How is it a piece of cake?

A financial report of Bitstamp showed they had 800k profit for a large period of time.

Not sure 4-5 million is coverable by them.

I could see this being a possible outcome.

If someone is willing to fork over $5million and bitstamp is willing to give a nice chunk of the company over to them.

Interesting option I would say.

It's no problem because it's not real money it's just magic internet money.

$840,000 profit in 2013, if bitstamp succeed in 2014, triple profits 2013, it only $2,500,000
how bitstamp cover BTC180,000 ($5,000,000) losses??

lol I like your outlook. Although I highly doubt many will agree with you.  :P

ok, bitstamp seem to go far, I want to know how they should to make up for this losses?

for this, I had to trading on lakebtc, and make btc-e as the alternate.

I was lucky to have moved my trading funds to BFX (for margin trading) a few weeks ago, so I had 0 left on Bitstamp.
But this still saddens me. Those who have a significant amount left must be feeling Goxxed, you have my true sympathy.
I hope Bitstamp will recover from this and come back, and a better security model will emerge.

may the speak of bitstamp ceo "the bulk of our bitcoin are in cold storage, and remain completely safe"
https://twitter.com/nejc_kodric/status/552091195795845120

I only want to know whether lakebtc is safe now? I had got their lowest rates, I do not wish to start again for another exchanges from highest rates

It doesn't matter whether there's gazillion bitcoins safe in cold storage, these are all customers' deposits. If they've lost 19,000 BTC, they have to compensate for that. So the only question is whether they can afford it.

OR if they want. The easiest way would be to close the biz, take the rest of the money and Bitcoin and done. :)

 a huge part of these 5 MIL are into their bank account. Who is interested to keep Bitcoin? They are interested in real cash, the one from bank. They lost some numbers on a screen but they own the money in bank.

You don't have a clue how the Limited companies work, do you?

Withdrawing money/bitcoins to their personal accounts would be like robbing the bank and showing your face + your id document to the security camera.

The easiest way is not to close the biz, but to seek an emergency funding, preferably a loan from shareholders.

how many "hacked" exchangers did that until now (seek an emergency funding) ? All of them had Limited companies (LTD) :)

do not mix up the things. everything is possible in the Bitcoin industry.

who will give them 5 MIL USD? it's not 500K...it's 5 MIL  :)

and the one who is lending,wants to be sure that he will get the money back. Bitstamp will never be what it was even they will cover the losses. So, they won't have the same profit not even near. nobody will lend them for a long period of time because this is a volatile market. you can never what it's bringing tomorrow.

It's fair to assume that BitStamp is generating ~ $1m profit per year (after tax, salaries etc). The last thing you want is to close such business.

If any of the shareholder's (say Pantera Venture Fund LP) can afford to provide such loan - they'd likely do so. They should get it back (+ interest) in 4-5 years.

Even if later something goes wrong and BitStamp becomes insolvent, they won't lose the entire $5m, as they'd get paid proportionally along with other creditors from the remaining funds. So it's not as risky as it sounds.

agree with you BUT these things are happening in a normal industry not with Bitcoin.
According to Bitstamp,  Pantera Venture already gave them 10 MIL USD  (I am not sure why...why would they need a such amount???!!)

we are talking about 10 MIL but it's a LOT of money. 1 MIL is huge...10 MIL USD is ENORMOUS :)
This investor must recover these 10 MIL first...
$1m profit per year (after tax, salaries etc) = 10 years, let's say 5 years because Bitspamp will doble its profit. 5 years are too long for a Bitcoin biz.

Of course, 1 MIL per year profit is a very good business but when you are dealing with something with a huge volatility like Bitcoin....you can never know. Nobody will make an infusion of 5 MIL now, knowing that Bitstamp will need at least 6-10 months to reestablish their credibility(IF they will be able to do it).

its look like mtgox
if it cant fix in a few days bitcoin prize go to deep..
darkly days wait us..

Wasn't aware of that $10m from Pantera. That's indeed a lot. And if that's true, they're likely to have a lot of that left (depends on the terms of the funding), so they don't need any extra funds to cover the hacked wallet.

Also, if Pantera invested such capital, you can be sure they won't let BitStamp die.


If BitStamp goes under, the $10m will be lost forever, so it makes perfect sense for Pantera to further capitalise the business (if that's needed) and have realistic chance for ROI, even if it takes a long time.

Edit. The loans are not repaid from net profit, so it can take less than 5 years to get those $5m back.

it is true what I am saying. BitStamp received 10 MIL from Pantera last year.

http://www.coindesk.com/bitstamp-got-10m-fortress-linked-hedge-fund-last-year-bloomberg/

The loan cannot be paid from people's deposits. Then, it must be paid from profit.

Pantera won't lend them other money. Be sure of that. Bitstamp won't be able to return 15 MIL.

Bitstamp won't have a good profit in 2015 because of these problems of credibility. Bitstamp  has a lot of expenses. Do not forget, PayPal chief compliance officer came to them too. He must paid with a BIG salary. :)

Volatility is only good for business of an exchanger.

YES !  and these exchangers are making the market. they make the cards, setup the Bitcoin price and the fouls are paying :)

Look to the Bitcoin price today. It's frozen at 270 USD EVEN most of the people are selling !

Thanks for the link.

I was referring to 'net profit' (assumed $1m, after tax). If I'm not mistaken, they can charge the amount of stolen bitcoins as an expense and do the same with interest on the (hypothetical) $5m loan, effectively reducing taxable profit (to a loss) and don't pay any tax (for a few years) which could speed up the loan repayment.

Actually it is not that much. Considering office space, furniture, equipment, marketing, energy, internet access and other bills, etc, I would guess that it may support a 20-person company for 6 months, maybe a year.  Probably they have already spent half or more of that amount. (Investors do not give money to a company for it to keep unused in its bank account.)


I believe that is called "sending good money to chase after the bad" in finance.  

Pantera would have to choose between writing off 10 M$, or investing 20 M$ that will take 10 years to be paid back, before it can start yielding 1 M$/year profit (maybe).  Will Bitstamp survive 10 years?


The loans would be repaid from the revenue, and that extra expense would decrease their profit by the same amount.  So yes: effectively, the loan would be paid from the profits.   In that scenario the other investors may not receive any profits for the next 5 years.

After paying salaries, bonuses, shareholders and perks, a company doesn't just put away tons of money in the company bank account. They make sure they spend the profits.

As for finding an investor to bail them out, who is going to loan them big money when they just lost the next 5 years profit and they don't even know how it happened?

If they're operating in Slovenia, the total annual operating costs (for 20 staff) should easily close within $1 million (excluding execs' salaries, as this could be anything). And it's probably much less. It's a straight-forward business, don't think they need 20 employees, and office space rental (with internet + electricity + basic equipment) is not that expensive.

There's no way they could make a profit (and they did in 2013) with $5-10m expenses. They've never had enough volume for that.


Why $20m? 10 (already invested) + 5 (stolen) = $15m.

The question is why they've invested $10m in the first place. It doesn't look like BitStamp ever needed that kind of money shot.
Possibly Pantera threw some money in and obliged themselves to provide further support/guarantee, all totalling $10m. Just my guess.

Anyhow, I can't imagine Pantera writing off $10m and giving up on profit-making business.


That's what I meant:

their office is supposed to be in England not in Slovenia.
The office rent is around of 3000-4000 euro/month because they are in 5 New Street Square, London.
They wanted to be "trendy". :)

I do not believe they have more than 2-3 employees for customer support and order processing(bank wires). They have 1 programmer + 7-8 "executives". I counted 7.

The executive salaries must be BIG(over 10K per month).
in summary, Bitstamp expenses should be around of 1 mil EURO per year due to their "executives" :)

It's the registered office (London), it doesn't have to be their operational office, and probably isn't.

Were did you get those 7 executives from? I only see 5 directors + 1 secretary (they don't have to be exec, and exec doesn't have to be official director).

Exec's salary is just a guessing game. It could be zero, or minimal wage (if the exec is also a shareholder, in such case he'll get most through dividends), it could be performance-related salary etc. They'd have to be really stupid to sign up an exec for ridiculous fixed salary without tying it to performance.

Do not forget the former Paypal exec. who come to Bitstamp last year. I am sure he is not paid with the minimal wage.
 He didn't leave Paypal for some pennies.
Also, count the exec. trips. USA, Canada, whole Europe, Asia. These trips are not so cheap.

I am sure all the exec.(even they are shareholders) had BIG salaries and not minimal wage.

What I want to say is that a such company is hard to maintain. Nobody will use it in the near future even they pay everybody back.

I'm not sure the "too big to fail" scenario works in this case. Execs lose their jobs all the time. The only difference between them and a regular Joe is that their CV helps them land somewhere else pretty quickly.

correct but their exec are Arthur Britto, Daniel Wayne Morehead, Steve Waterhouse, Cto Damijan Merlak, Nejc Kodric
Arthur Britto is founder:  Ripple Labs too. So, Bistamp is related with Ripple.

 Daniel Wayne Morehead is Pantera Capital Management who lend Bistamp with 10 MIL. Same with Steve Waterhouse,  founder:  Ripple Labs ,  Pantera Capital Management.

Cto Damijan Merlak, Nejc Kodric are the owners.

Who will lose his job, the programmers? :)

Big players throw their money in lots of directions hoping that one of them is the miracle investment that buys that island in the pacific they've had their eye on. Some of them fail and some of them make money. I'm not saying stamp won't bounce back. I just don't believe looking at the VC money source or employee roster matters as much as people think it does.

Indeed, my mistake.


That is a good question.  OKCoin and Huobi too received similar VC investment.  They have a much larger staff (Huobi claimed to have ~50 people just on customer support), but being in china all their costs should be even smaller than in Slovenia.

A company that moves that much money will need several people in finance and accounting.  They will need people to take care of AML/KYC, or (more likely) sub-contract a specialized company (which are said to be quite expensive).  

I would weakly defend my estimate of 5 M$ for expansion of operations and 1 year of expenses.  I cannot find fault with the lower estimates that people have posted (around 1 M$/year), but do not feel them compelling either.

What were their costs in 2013?

One thing to note is that most of the VC investments that were announced through 2014 were actually negotiated in late 2013 or early 2014.  (For example, OKCoin said that their 10 M$ investment, announced in Mar/2014, had been closed in Dec/2013). At that time, expectations for the growth of the bitcoin economy and price were still in outer space   (By May 2014, most bitcoin gurus and angels were still predicting 3'000 USD/BTC or much more by the end of the year.)  That may explain why the investments were so big compared to the current profits.

The most bitcoin gurus and angels and those who are making a lot of noise in media. a lot of noice = new fools with new money in Bitcoin.
There is a gang who is controlling the system even it's saying it is decentralized :)

Bistamp is related with Ripple, Bitcoin Foundation and others. Their shareholders are shareholders for many other bitcoin companies.

i think they will cover the loss because the scandal will be TOO BIG and it will involve all these companies and Bitcoin will crush.

So, they are a gang who is manipulating the market how they want and each of them are taking a piece of the cake named Bitcoin.
Proofs are everywhere : fake transactions, bitcoin price is given by few companies who are controlled by the same people.

Bitfinex, Coinbase + other many small exchangers are related with Bitstamp. Bitstamp is processing their orders.

No one knows (apart from them). What you see in the first post of this thread is all the financial info publicly available at the moment. As a small company they were entitled to present abbreviated accounts, so pretty much only the balance sheet.


That's probably a good point.