Lawsky and the NYDFS released the final version of the Bitlicense today. While bitcoin community members have been internet fighting over regulation, the bottom line is that it was coming one way or another, deal with it. If individual companies feel that the current framework is too restrictive, Lawsky stated that the NYDFS would be willing to re-visit the license and amend it as necessary.
Taking a look through the license, there are a few things that we feel are important to point out.
This is great news for anyone worried about their exchange running a fractional reserve, trading with customer funds, etc. What it also appears to mean, is that US based exchanges can soon begin running a BFX style swap system.
This aligns with FinCEN’s previous statement, which can be found here. While one day we hope that bitcoin will be recognized as legal tender, the regulators aren’t there just yet.
Currency vs. Virtual Currency
FinCEN’s regulations define currency (also referred to as “real” currency) as “the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.”3 In contrast to real currency, “virtual” currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction. This guidance addresses “convertible” virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.
What we find to be the most important piece of the new Bitlicense is something that most will overlook. In the 2014 version (here), there was a part at the bottom of page 14 that caught our attention.
Sneaky, sneaky… so once hyperbitcoinization sets in, and no one wants that dirty fiat, the original plan was to use the trash cash to continue supporting the ponzi.
This is NOT in the new Bitlicense, and we thank you for that Lawsky. Overall, this is an extremely exciting day for Bitcoin. Although not all welcome regulation, the proposed framework does not seem too restrictive business wise. Anyone with $5,000 per application (to pay for your background check and associated fees) is now free to send in their fingerprints and completed forms to the NYDFS to review.
Another day, another fun filled piece of OK Coin drama. Luckily we are just reporting on the actual events taking place, because we couldn’t make this shit up if we tried. When we left off, OKC had fired the last shot – presenting their research from Ben McGinnes to the public. We tried to give OKC the benefit of the doubt with this, knowing that the hole they won’t stop digging will eventually cave in. But as Vitalik Buterin quickly pointed out, their attempt to sweep the issue under the rug, has significant flaws:
My primary technical concern with the report: I am highly skeptical of this idea that it is “not possible” to manipulate timestamps. Particularly, the way I would do it is by shutting off internet access, maybe switching to a fresh linux installation, and setting the system time to whatever I want before making the document. Maybe not grandma, but uncle Bob could certainly do it; very few technical chops required except to realize that the steps are necessary in the first place. Why would that strategy fail?
As CZ later states:
The fact that OKCoin paid $20,000 USD for this “analysis” demonstrates the level of quality in their “proof” or “evidence”. It may also show a sign of desperation and/or stupidity. I am not sure which.
A few hours ago, CZ came forward with a full statement on Reddit. CZ’s post pastebin is here, in case that is deleted. Although he has interjected intermittently, CZ has chiefly remained silent on the issue (the only person at OKC to act like an adult, and he isn’t even working there anymore). We don’t blame him for coming forward today though, especially after his personal reputation was dragged into this as he was accused of forgery (a very serious crime).
CZ starts off by admitting a slight misstep on his part, something OKC has never done throughout this situation.
I made the mistake of using a simple gentleman’s agreement as the contract. Roger and I are friends. We have enough respect and trust for each other that we both thought a simple gentleman’s agreement would suffice. I did not expect OKCoin will delay or default on payments of $10k in size. For this I apologize. I also did not expect OKCoin would not pay my salary for the time I spent there.
This answers some of the questions that Reddit users had posted, as the contract did not specify venue, or have other legal nuances that a typical contract will include. Regardless, a contract is a contract, and should be honored under any circumstances.
CZ makes claims that OKC forged his signature on bank documents after his departure and hacked/gained access to his QQ, but these are unsubstantiated as of now. The following claims have also been made by CZ, and we feel that they are important for the bitcoin community to take in. We still don’t know if these claims are 100% true, but coming from a former employee (and others), smart traders should be able to form their own opinion. It is interesting how CZ refers to the database admin as “funding”, inferring that OKC may have some financial inconsistencies. The “fake volumes” portion is no surprise to most bitcoiners, these allegations have been ongoing for over a year.
I can confirm OKCoin runs bots on their exchanges, under instructions from Star Xu. These bots are managed by Chen (business and operations), Yu (programming), Wang (database admin, “funding”). Many employees and ex-employees of OKCoin are aware of these bots. I will not name them all here.
I can confirm some of the above bots are designed to pump up volumes. During certain periods, these bots have also been used in a manner to create orders that will only trade against themselves, not with user orders. This mode of operations was strongly resisted by even Chen and Liu (programming, matching engine), but Star Xu insisted on executing it.
I can confirm OKCoin removed a number of accounts (used by OKCoin bots) to pass the Proof-of-Reserve audit in Aug 2014. In essence, these bots trade on fractional (or fictional) reserves. Stephan Thomas was lied to during the audit. This is an unfortunate limitation of the proof-of-reserves method.
As a side note, Stephan Thomas specifically did not want any compensation for his audit efforts. Before the audit, OKCoin offered to make a donation in his name to a charity of his choice. He named a charity. After the audit was carried out, OKCoin never made that donation. Zane is aware of this. In fact, Zane followed up with Star several times after the fact, Star refused.
What the fuck is so difficult about OKC providing us with SOME proof of reserves? All they keep referring to is this shitty blog post (more on this later), which proves NOTHING. Let’s take a look at Kraken’s policies? Their extremely thorough policies are outlined, in detail, and even shortcomings are presented to their customers. And what is this about future audits being performed in a manner that should satisfy their customers?
We intend to perform regular audits on an ongoing basis. Since there is no universally trusted auditor, we may use a different auditor, or multiple auditors each time. This satisfies those who may doubt the credentials of a particular individual auditor.
They then walk through the steps to verify your individual account balance. As they note themselves, their audit isn’t perfect, but its pretty damn close. BRB while we go find Star’s mom to verify the OKC cold storage.
There have been unsubstantiated claims on Reddit that OKC never actually received the investments that they claim. Again, these rumors have NOT been proven true (yet), but a person can start to put the pieces together themselves if they wish. Pastebin of those rumors is here.
Edit: It has been confirmed that some of the above rumors are false. Mandra, Ce Yuan and VenturesLab have made investments in OKCoin.
And from CZ’s post today:
As the 2nd largest individual shareholder in the company at the time, I was never allowed to see a bank statement, even though my name is associated with several bank accounts of the company. In Jan, I asked strongly to see the bank statement where the VC investment money transfer was received, I was denied. I left shortly afterwards.
As many were curious before, this is the meaning of “different directions”. I could go on for a while. But will stop here. I feel sad we had to come to this.
We knew that a post from OKC would soon follow (in their typical fashion). Not long after, one popped up: OK Coin’s post (presumably Star) is here, in case that is deleted. This post appeared only 5 hours after CZ’s, and contains a considerable amount of text. One would guess that OKC began this post almost immediately after they saw what CZ had posted, and then released it to the world (and edited it). Let’s think about this for a second. The “leading global bitcoin exchange” should probably have their PR people write anything which represents the company, which should be sent to their legal department (which should be fluent in both English and Chinese) and then it should be approved for posting. That is, of course, assuming that its proper business etiquette to take anything like this into the public forum. Wouldn’t it be more appropriate to have an OKC lawyer post something if they felt the need to address the situation publicly?
The first part of OKC’s post is their same bullshit before about the video. Guys, no one cares. Next, they start attacking CZ and his skill set. Let me get this right OKC, you are telling us that a guy who has been using PGP to sign his e-mails since 1998 has no technical know how?
OKC mentions the following:
OKCoin has always had suspicions that CZ betrayed the company. Would you write a contract where the other side could cancel the agreement at anytime while you could only stop the contract after 5 years? Would you put yourself in a position where you provide resources to develop the website to only be taken away by Roger at anytime?
Given the conduct of the company throughout this matter, it wouldn’t be surprising if OKC knowingly entered the contract. They clearly don’t have their shit together management wise, and the first half of this post where they unprofessionally attack CZ as OKC is just more evidence of that (and how childish they are). Regardless of what an individual says, a company must take the high road.
On to OKC’s responses of CZ’s allegations:
OKCoin even offers a paid service to help high frequency traders by setting up co-location for our customers.
WOAH. MAJOR RED FLAG. As if the situation they already put themselves in with this contract isn’t enough, why the fuck would anyone trade on this exchange knowing this information? For more information on co-location:
This practice is known as collocation, and it’s employed by nearly every exchange in the U.S. For a fee, trading firms are allowed to place their trading computers in the same data centers that house an exchange’s computer servers. With sophisticated models built into these trading computers and little oversight on the exchange itself, the computers are almost guaranteed to be the first on any order should they choose to act on.
This week, New York Attorney General Eric Schneiderman is expanding efforts to “shine a light on unseemly practices that cater to high frequency traders at the expense of other investors.”
Among them is the practice of allowing high frequency traders to co-locate their machinery in the exchanges, giving them a latency advantage over other firms outside those datacenter walls.
Schneiderman detailed several of the products and services that high frequency traders use to gain competitive advantage. These include early access to proprietary data feeds, which are faster and more accurate than what is publicly available, as well as co-location practices that allow firms to house their servers inside the exchanges.
OKC claims that they do not use any “bots” of their own, but what is the wood chipper then? Do they pay some tweaked out Chinese guy to sit there and click the mouse really fast to clear margin calls?
CZ does not understand what an audit is? Well then, as a C level exec of the company, shouldn’t he be clued in? Sounds like OKC doesn’t know what an audit is, because they haven’t actually shown us anything since August 2014 (with no evidence). Take some notes from Kraken’s audit process above guys.
Regarding the cold wallet, WHY do you keep pointing us to that pos blog post? Words mean nothing, show us the public key. This is one of the three questions from shitcoin that OKC has still not answered.
After the recent BFX hack, users were able to track this wallet and this wallet to their cold storage. That is over 200,000 bitcoins, where are yours?
OKCoin is currently withholding CZ’s January 2015 and February 2015 salary due to the following reasons:
a) We are currently still in the process of transferring CZ’s ownership of our international entities. Once CZ has been removed from all documents, we can release the rest of CZ’s salary.
b) CZ until now, has not returned company property including the MacBook he was given.
c) CZ has not explained his forgery of the v8 contract.
However, since OKCoin pushed CZ out, OKCoin still agreed to pay his wage for January 2015 and February 2015
OKC admits to withholding CZ’s salary, and admits that they agreed to pay it.
a) One of your international entities? What, like the one in Singapore that doesn’t exist? This brings up another one of the 3 questions that shitcoin has for OKC which has not been answered yet. Can you please outline your corporate structure.
b) Maybe he isn’t giving back the company property until you pay him? You owe him $40,000 USD, that’s more than most American’s make in a year.
c) This just sounds like you are asking for ransom now.
Finally, OKC addresses something we have been inquiring about (kind of, they don’t answer any questions though).
OKCoin’s lawyer Li Ya Jun’s contact information can be seen on our website.
Heading over to the OKC website, he is now mentioned:
But why are we going to take their word for it. As we have seen with OKC, it’s always best to check sources. A quick use of the old Google machine brings up the following law firm: http://www.jingzelaw.com/index.aspx
We wish that it just ended here and we found out that OKC is lying, but the actual truth is much more humorous. Some more searching lead us to this page – http://www.jingzecn.com/page/369.shtml
which appears to be some kind of mirror of the other site. Li Yajun can be found on this site, but we’ll get to that in a second. From the firm’s about us:
Our firm is made up by a group of expert-style lawyers
Excellent, a group of expert “style” lawyers. We know this is just nit-picking at a language difficulty, but we can’t help but laugh.
Finally, we come across Li Yajun. Yes, he is a partner… but look at his expertise and prior work experience. Quite the resume, but not who you would expect to represent “the leading global bitcoin exchange”, which should be considered a financial institution.
It is clear that Li Yajun does exist, and that he is a lawyer, but this just opens OKC up to more easy bashing. If you are the “leading global bitcoin exchange”, wouldn’t you go out of your way to find a legal team who is well versed in cryptocurrency? Roger, as an individual, did so. I would hope that the “leading global bitcoin exchange” would have more resources dedicated to legal and compliance than an individual.
So, in the end, we still have 3 questions for OKC which haven’t been answered:
1. Can you show us your cold storage wallet and proof of BTC(XBT) reserves?
2. Do you have an English speaking lawyer that is interfacing with US authorities, to ensure that OKC is in compliance with US regulations?
3. Can you please outline your corporate structure for the community.
To all OKC traders who aren’t reading the writing on the wall. We are sorry for your future loss.
The last thing you want to do when it’s really nice outside is sit and read through/analyze documents. Even worse, is when you finish, and realize you just wasted hours of your life that you will never get back. If you haven’t guessed, yes… this is related to OK Coin.
Today, they took their turn in evidence presentation to the Bitcoin community and general public. In this Reddit post, the CEO (Star) gave his arguments, and side of the story regarding the document forgery. Pastebin here in case that is deleted. As expected, none of the other pressing issues the community has been hounding OKC about were even remotely addressed. Shitco.in has our own questions for OKC, they were outlined in this post.
As part of their evidence, OKC posted the following video:
Almost as if their goal was for this to be the focus of the post, the link and “subtitles” (Guys, you REALLY have to start learning proper English. Maybe, “walk through” would be more fitting.) take up a full 1/3 of the Reddit post. Most ADD Redditors probably stopped there. To anyone who doesn’t know Chinese, the video is pretty much worthless because you have to take their word for what is going on. They move so fucking fast through everything, and it looks like they used a potato to record it. Yes, we paused the video a million times to see what as going on, but if you are presenting “evidence”, it should be much more user friendly. The conclusion that they want us to draw, is that a former employee (CZ) is the culprit.
After this, we have a sliver of the report which was written by Ben McGinnes. Again here, we have to analyze the specific format that OKC chose to insert this into the Reddit post, because to us it is just hilarious. Someone went out of their way to write a 20 page report not making you look like total assholes, and you bury the link directly to the PDF in a 3 character hyperlink? Then there is a link to the site where the report is posted, but users have to click another link just to view it? Click here to view the report. Yes OKC, we gave that PDF more exposure than you did (by 6 characters).
The report that Ben presents is extremely thorough, very well documented and very professional. Overall, it looks like a very solid and well researched piece of work (great job Ben). We took the time to look through the sources, read through everything and fully digest the information presented. The entire report is interesting, but the most relevant part to our readers would be the conclusion:
In summary, we have OKC admitting that there was a file modification, but because it wasn’t Star – its OK! Roger’s cryptographic dis-proof of fraud bounty hasn’t been collected, and OKC tries to sweep this under the rug by paying out their bounty and attempting to make a public event out of this “conclusion”. The key word from the last sentence, attempting. Honestly guys, we have had more posts on the front page of Reddit (for longer) than the “leading global bitcoin exchange” regarding this topic.
Even if the v8 of the document were “real”, OKC would still owe Roger money for the months they managed the domain. If OKC thinks that this makes them look any less sketchy, they must have some fine narcotics in China because this is even more incredible than before this recent temper tantrum. CZ was the CTO of OKC, a C level exec of what should be considered a financial institution. While we are aware that fraud in existing financial institutions runs rampant, shouldn’t there be some sort of cross check system within any organization for legally binding contracts? How does it change the situation that there was a fraudulent document introduced, that was signed off on by a then acting officer of the company? Oops, sorry. We mean “officer of the brand”. To us (and probably the legal system), this still constitutes fraud.
We still would appreciate answers to the following 3 questions:
1. Can you show us your cold storage wallet and proof of BTC(XBT) reserves?
In a dramatic turn of events over the weekend, the OKC/Ver situation that had “gone nuclear” on Friday, appears to be more of a long lasting Fukushima type incident than an atoll test. Read our overview of part 1 and part 2 if you aren’t all caught up.
We thought the story couldn’t get any more ridiculous, but thanks to the public actions of “the leading global bitcoin exchange”, we are in full blown unicorn territory. In what appears to be a move of desperation, the OKC CEO (Star) took to Reddit in an attempt to clear the air. Pastebin is here, in case that post is removed. Ironically, but not surprisingly, this posting only inflamed the situation further.
In what appears to be the only attempt at negotiation OKC is capable of, they are now offering $20,000 USD to anyone who can prove they are right, and Roger is wrong.
OKCoin will reward $20,000 USD to anyone with authentication skills confirming that the digital and hardcopy of v8 are genuine and signed from December of 2014 by our former employee.
Ok, so at first glance that might not seem too insane… but if you take about .5 seconds to think about the situation, is it ludicrous. In summary, OKC is taking on the NSA in their attempt to break cryptography. If you were one of the individuals who failed the Cicada 3301 challenge, here is your next opportunity.
For those of you that are just joining us, the last few days have been a smorgasbord of deliciousness in the drama that makes up bitcoin.
OKCoin, we at shitcoin, would like to ask you the following:
1. Can you show us your cold storage wallet and proof of BTC(XBT) reserves?
This should be trivial, at best. Stop hunts aside, the community wants answers.
2. Do you have an English speaking lawyer that is interfacing with US authorities, to ensure that OKC is in compliance with US regulations?
We could go on, and on… and on. Let’s just leave it here for now though.
Although short, this post took a considerable amount of time to complete because we kept deleting quality shit in order to keep the butt hurt level down. It probably would have been much more humorous had we left some of the original content, but we don’t want to rock to boat too hard. We are hardcore bitcoin believers, that’s why this shit is so hilarious. Yajun Li, we want to ask you: Have you reviewed the investment contracts that Tim Draper sent over via Googe Translate? How does a term sheet look after you run it through Google Translate? Does Lawsky use Google Translate as well to communicate with OKC? How do you say business suicide in mandarin?
As if things couldn’t get any more ridiculous, these e-mails show that the clock is stuck at amateur hour over at OKC, and has been for quite a while. There really isn’t any nice way to put it at this point, and it wouldn’t surprise us (or many other Bitcoiners if Reddit is a gauge) if OKC was also engaged in other, seriously dubious practices.
Again, we would like to reiterate the point – OKCoin, the self proclaimed “leading Bitcoin exchange”, appears to have (at the very least) created a fraudulent document in order to back out of a deal that was going to lose them money. The question we ask is, why would you trust them with your money?
We were really looking forward to more drama unfolding, but had no idea it would materialize so quickly. OKC tried to mitigate the situation with a blog post clearly designed to push their narrative, but like most of their bullshit, their desperation is nothing short of completely transparent.
Moving on to today’s fun – (Roger/his team is in blue, OKC’s side is in red).
Apparently, knowing the content of the site they are supposed to be managing is too much to ask.
This is just insane… these people run the largest futures market for Bitcoin and they don’t know what is on a page that says this at the bottom:
We can skip over the countless e-mails where Roger asks for money, they give him some run around and obviously no payment is delivered. We get that people have mixed feelings about Roger, but it shouldn’t be hard to look at this from an objective point of view… especially with all of these e-mails out in the open. Roger conducts himself in an extremely professional manner, is well spoken/written, educated on the subject areas in which he discusses and is willing to expend the proper resources to have the issue resolved properly. OKC, on the other hand, continuously contradict themselves, have many employees and a CEO who apparently don’t know proper English, have a lawyer who uses Google Translate and seemingly can’t pony up a small amount of cash for a contract they signed/agreed upon, for an issue that is “a small thing in our [OKC’s] company”.
It also appears as if OKC offers Roger to engage in a payment scheme which may be less than kosher.
Again, we would like to highlight the point that OKC (even though they have investments from US based firms) does NOT have counsel which know English. WHAT THE FUCK. Putting aside the fact that OKC appears to have created a fraudulent document, how are they going to interface with the US authorities to ensure that they are in compliance with US regulations? If you don’t see the writing on the wall now, we are sorry for your future loss.
In case our readers think we are being hyperbolic, please see the next item. There is an e-mail from OKCoin’s “lawyer”, which is in one of the Chinese dialects, and obviously wasn’t too impressive. Roger’s lawyer (in both Chinese (presumably Mandarin) and English) shortly responded, with the attached:
Edit: Here is the e-mail from OKC’s lawyer.
A reader knowledgeable in Chinese reached out to us after this report, and submitted the following:
15/5, 15:11: These are 简体, or simplified Chinese. It’s odd that the lawyer didn’t sign their name in Chinese characters, only using YaJun
17/5, 08:48: Daniel replies in 繁体, or classical Chinese as used in HK where he seems to be based. The simplified Chinese for the characters he uses for YaJun Li are 李亚军, and when he later suggests it’s a crime to practice law without a licence, it may indicate the lawyer is suspected to be fictional
17/5/2015: This is from the supposed lawyer. The text is, “We don’t acknowledge your position, you can adopt whichever legal methods you think effective.”
There is some additional back and fourth which contains some more fireworks, but we can leave those for you to read – here’s the link again. Essentially, it is just more banter between all of the above parties, OKC acts extremely childish, Star makes some more shit up and Roger drops the hammer regarding cryptographic proof of fraud. It honestly is almost not worth reporting on some of the shit that OKC says because we don’t want to make the Bitcoin community look bad.
At this point, it appears as if the credibility of OKC as a company, and of their CEO personally has been completely liquidated (kind of like their customer’s trading positions). Be vigilant, do your research and decide which companies you feel have the best reputation when you engage in trading. If you haven’t been stop hunted, and actually make some profit, please consider the possible longer term repercussions towards the community for supporting a business like OKC. Some profit today is not worth it in the longer term, if OKC turns into Gox 2.0. We are all building this community together, and as a community we should self-regulate to limit the number of bad actors.
Some people are still pissed off at Roger for his Mt. Gox audit, but given the actions of government employees leading up to the questionable seizure of Mt. Gox bank accounts, we don’t think its really fair to place blame on anyone until all of the details are revealed. So if we can all agree to forget about that Gox thing for now, let’s just focus on the issue at hand. OKCoin fucking someone else over. This time though, it isn’t through stop hunts.
Remember back in February, when the OKCoin CTO left? The entire thing reeked of shadiness, but once again, let’s just give them the benefit of the doubt for now and say that it was a peaceful departure. Now let’s move many stop hunts and margin calls forward, it looks like OKC are liars, manipulators and probably under some sort of financial stress (aka running a fractional reserve exchange).
Roger hosted this DropBox link, where all of the source files can be found. For the non-believers after his last claim, this one contains cryptographic proof of scam.
Moving on to the most relevant and shocking parts of today’s revelations:
Sketchy as fuck. We will get into the finer details that Roger reveals, but already we can see evidence of OKC being liars and manipulators. Personally, I don’t really think anyone would want to put their hard earned bitcoin on an exchange that manipulates legally binding contracts, but that’s just me.
OKC has preferential rights to advertise for itself on bitcoin.com, but that probably won’t help increase revenue unless that advertising is purely to bring in new game (oops I mean customers) for them to hunt.
I’m Damian, I was Product Manager (UX) at OKCoin at the time the company took over custody of bitcoin.com. I can confirm the OKCoin statement is delibrately misleading.
The intention of the CEO, Star Xu, was to use bitcoin.com to advertise OKCoin. I know this because he rejected my first wireframe and asked me to add 2 links to OKCoin, one on the homepage just below the navbar and another just a few hundred pixels down. I still have the wireframes. Xu’s micromanagement of this project was among the reasons I left weeks later.
There was no plan for quality content at any point. No plan to add value to the bitcoin ecosystem. There was only a plan to advertise OKCoin.
Just over a month in, we have OKC supposedly taking money from other companies for advertisements and never displaying them. As if the wicks that perfectly completed H&S weren’t enough, you traders have to be dumb as shit to keep any coin with these people.
Sound familiar? The only thing we didn’t see here was OKC telling Roger he would get the money in two weeks. We don’t want to make any accusations, but it is starting to sound a little bit like OKC might be having some financial difficulties. They are trying to wiggle their way out of this using any slimy trick they can. This next part is just classic though, a fucking lawyer that conducts business using Google Translate? That’s right, the worlds biggest Bitcoin exchange (Bitcoin is this thing that’s supposed to revolutionize finance if you forgot) has a lawyer that uses Google Translate. Enough said. No, seriously though… there is a tip address at the bottom of this page, and if you trade at OKC you might as well just send your coin to our tip address before it disappears.
And to read that last document referenced from J. Maurice, click here.
The tin foil hat wearers aren’t starting to sound so conspiracy theoryish about that resignation now, are they?
As if the on exchange shenanigans weren’t enough, here we have some pretty damning evidence that OKC is, in fact, as shady as we have all thought.
Thank you Roger for providing us with this insight into the operations of one of the worlds leading bitcoin exchanges. One that has the “highest volume”, and moves the price considerably. Maybe traders will start to re-consider their trading decisions, and use more transparent exchanges which actually act in the best interest of their customers… like BitFinex did today, when they promptly and professional took care of a small exchange security breach, and covered customer losses out of their own pocket.
A running joke amongst Bitcoin traders is that “we just draw lines and steal each others money all day”. Sadly, this isn’t far from the truth, but there is one important piece that most people miss out on. “We” aren’t just stealing each others money, but the market makers are constantly taking money from traders and exchanges are pulling in transaction fees like a going out of business sale.
Sure, some say that if you stare at the charts long enough you will see pretty much anything, but we think that there has been a little bit more going on behind the scenes.
We recently discussed the migration of bitcoin traders to alternate markets. Because of the higher fees on BitFinex relative to the Chinese exchanges, the liquidity on BFX during these slow, ranging days has dried up worse than California’s water resources. It’s almost as if traders have given up, and don’t care about participating in a marketplace that is being raped by the market makers.
This looks evident if we analyze yesterday morning’s sell off (pay attention to volume).
The lack of volume on BFX during the sell off leads us to believe that there were few active participants at that time, including stop and limit orders on the exchange. This is very strange, considering the usual cross exchange volume correlation.
If you trade on BFX, and stare at their charts all day every day, you will recognize this shape in the visual representation of their order book (showing bid/ask depth). It won’t fucking go away, except for when there are sizable market pumps or dumps. Even when the market moves a small amount, liquidity near bid/ask becomes non-existent these days.
While it is possible that these are many different people’s bots adjusting to market fluctuations, it seems more likely that this is one market maker. By controlling most of the order book near the bid/ask, it would be incredibly easy for a market maker to deduce which orders belonged to other traders, simply by process of elimination. This would certainly give them an edge over others.
We aren’t saying that this is definitely the case, but coupled with the article from BTCVIX it seems like a reasonable explanation that would explain recent market behavior. We trade on BFX, love them, and think that they have one of the most sophisticated total trading packages (swaps, etc) that is offered to bitcoiners. In no way is this meant to say anything negative about BFX, just offer some insight into the activities of what appear to be a large market maker on the exchange.
Obviously the intention of any market maker is to make money (and markets, we guess). The irony in all of this is that their aggressive market making activities could be discouraging traders, which decreases their profits, and the profits exchanges reap from trading fees. The beauty of this all (if correct, of course), is that we are seeing a free market in work.
The Swedish Bitcoin ETN launched today on the Nasdaq OMX Nordic market. This ETN tracks the price of Bitcoin via 3 exchange quotes, and each unit/share is equal to .005 BTC. Shares are quoted in SEK though (Swedish Krona), even though the prices are derived in other currencies from the Bitcoin exchanges.
2) It is stated in the Prospectus that Bitcoin Tracker One will be applying to be listed on the Norwegian and Finnish markets. This would be a great step in the right direction, and would presumably give one of the worlds largest sovereign wealth funds easy access to Bitcoin.
Back on this side of the Atlantic, on the US Nasdaq OTCQX, GBTC has been significantly closing the spread between it’s trading price and the spot market.
We look forward to seeing the continued trading of these two instruments, it’s good to see Bitcoin finally being accepted into the mainstream.