It’s no secret that there’s been a bit of an anomaly when it comes to
Bitcoin’s pricing, such that different exchanges have widely different
values. But what’s important to understand is why this is happening and
what it means. After all, it’s not the first time this has occurred, and
likely won’t be the last.
The Price Gap
As of this writing, the price gap between the exchanges is around
$200, with Bitfinex being the highest and BTC-e being the lowest. This
is in contrast to a few days ago where the gap was only around $50, but
in normal cases, it would be almost negligible altogether. What’s
causing this to happen is a banking issue, bringing about a bit of a
fear-based situation.
Bitfinex Has Banking Issues
Bitfinex was hit by a banking shutdown, causing them to be unable to
send or receive fiat, aside from in Taiwan. All of their coins are safe,
as is their fiat, but as of yet, they have no way to send the cash out
to anyone. They have made many statements claiming to be working on the
situation, as well as pushing the idea that they are absolutely solvent
and that this is all just dealing with finding a new banking partner,
but crypto users are still reluctant to trust them due to previous
incidents, such as the fall of Mt Gox and Cryptsy. In both of these
cases, the exchanges were shut down, leaving millions of dollars lost by
their users. Many feel that Bitfinex is going to be the next site hit
by this and are taking the safe route – at a high cost.
Getting Money Out of Bitfinex
For those that have fiat stuck at Bitfinex and want it out – either
because it would otherwise take too long or because of lack of trust
that it will ever be possible – using cryptos has been the go-to method.
This involves a fairly simple process:
- Use the funds to buy BTC
- Transfer the BTC out
- Convert it to fiat through another exchange and withdraw
The positive side of this is that there is no real delay – Bitcoin
can still be withdrawn, so this is a way to quickly get access to money.
The downside is that it comes at a huge cost, which is essentially
becoming a premium. As more and more people do this, the price of BTC on
Bitfinex will continue to rise. The reason for this is that with the
issues, others are reluctant to risk turning their BTC (which is still
liquid) into fiat (which may be stuck). As a result, it essentially has
two groups of people taking part: those who are willing to take a hit to
get guaranteed access and those that are willing to take the risk for a
fairly decent potential return.
What’s the Best Move Here?
Essentially, what’s going on is bringing about the question of trust.
There is a lot of money to be made if Bitfinex has been honest about
their financial solvency and eventually finds a way to allow
withdrawals again. But at the same time, there is no way to know for
sure until something happens, whether that’s the exchange shutting down
or clearing up their problems. But with international regulation that’s
still being designed, it truly does become a risky situation, such that
it should be looked at as being a high-risk, high-reward ordeal.
Pulling the Right Pricing
Due to Bitcoin’s decentralized nature, getting a solid, stable price
across exchanges is somewhat difficult. Usually, however, in situations
like this, Coinbase is going to be the go-to pricing system. The reason
for this is fairly simple: it’s regulated, follows all
regulation, is based in the U.S., and is unlikely to ever go through the
issues other exchanges have as a result of all of this. And with any
luck, the Bitfinex situation will blow over soon and all will go back to
normal!