[2017-04-22]Bitcoin Trading at a Near $100 Premium on Bitfinex

[xijieboy-8]

Bitfinex is now trading at a significant premium from other western exchanges with such huge gaps usually not seen for more than a few hours due to the considerable arbitrage opportunities it offers.

One bitcoin is currently trading at around $1,320 at Bitfinex, while on Coinbase and Bitstamp, bitcoin’s price is at around $1,250, near its all-time high.

The last time such gaps were seen for a lengthy period was shortly before MT Gox announced bankruptcy in 2014. Then, the exchange was trading at a premium of around $200 as traders could not deposit or withdraw fiat currency.


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Bitfinex recently announced they have been blocked out of the banking system, unable to accept deposits or process withdrawals in fiat currencies. The only way out is by buying bitcoin and sending the currency to a cold wallet or to other exchanges.

Some are suggesting arbitrage opportunities, which might explain the recent overall rise of bitcoin’s price in all exchanges. However, the buying pressure on Bitfinex appears significant, thus the exchange continues to retain a considerable premium.

If the exchange can account for all of its customers’ bitcoins and other digital currencies, then it should be able to process all bitcoin withdrawals, but they were hacked last year out of some 120,000 bitcoins. Therefore, it is not very clear just how many bitcoins they contain in their cold wallets, nor is it clear how these cold wallets are stored.

The situation appears very similar to MT Gox, the then biggest bitcoin exchange. They were cut-off from the banking system, leading to a premium of some $200. Eventually, they were unable to process bitcoin withdrawals as the exchange was seemingly running on fractional reserves.

Users began complaining about bitcoin withdrawal delays from MT Gox around December 2013, with the complaints getting much louder in January and then February, when the exchange announced they were insolvent.

There have been no such complaints regarding Bitfinex as far as we are aware, but if they start being raised it might be too late. Many, therefore, seem to be getting out, explaining the price premium.

The lesson here for other exchanges is that they need to be regulated as otherwise they may be suddenly cut off the banking system which would in effect make them as good as inoperational due to lack of liquidity.
https://www.cryptocoinsnews.com/bitcoin-trading-almost-100-premium-bitfinex/

[aso118]

It is meaningless to look at BTC-Fiat exchange rates, when it is not possible to withdraw the fiat.
I think indices which look at Bitcoin's price should just exclude Bitfinex from their calculations.

[Scott J]

This is like MtGox all over again, though hopefully without the insolvency.

This problem will probably go on for sometime, as I can't see them being able to set up new banking partners quickly.

[Qartada]

It is meaningless to look at BTC-Fiat exchange rates, when it is not possible to withdraw the fiat.
I think indices which look at Bitcoin's price should just exclude Bitfinex from their calculations.

It's not pointless at all.  It shows the sentiment of people who are trading on Bitfinex.

If you're trading on Bitfinex and you decide that you can't rely on them ever allowing fiat withdrawals again, you will pull out your Bitcoin while you still can.  However, if people decide that the risk of them collapsing is 20% and the price is at a 25% premium, they're likely to keep some funds in there.

Therefore, the exact premium on Bitfinex is essential to know because it tells us what traders on there are thinking about the future of Bitfinex.  Gox had an even higher premium towards the end because of how badly it was collapsing.

[numismatist]

The last time such gaps were seen for a lengthy period was shortly before MT Gox announced bankruptcy in 2014. Then, the exchange was trading at a premium of around $200 as traders could not deposit or withdraw fiat currency.

Observeable at the moment are $100, on a similar price level. Anybody remembers the timespan how long goxxing takes from $100 amount onto final $200, in days?

[freedomno1]

This is like MtGox all over again, though hopefully without the insolvency.

This problem will probably go on for sometime, as I can't see them being able to set up new banking partners quickly.

At the very minimum though we are nowhere near as concentrated as we were in the Gox Days on what exchanges people used.
Although at that time I was using cavirtex and canadianbitcoins so escaped that whole fiasco.
I agree about the banking partners being a problem though.

[1Referee]

Anybody remembers the timespan how long goxxing takes from $100 amount onto final $200, in days?

What exactly are you referring to?

Some data all the way till the last days of MtGox; https://bitcoincharts.com/charts/mtgoxUSD#tgCzm1g10zm2g25zv scroll down and click on load raw data.

It will show all their historical trades from 2010-07-17, where the price for one Bitcoin was $0.04951, till the last day of gox on 2014-02-25 where the price closed on $135. On that same page you can select other exchanges as well, and via that you can compare how the markets of different exchanges were doing compared to MtGox back in the days.