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Watch for a premium on the BTCUSD rate on Bitfinex. That'll be the market believing there's a significant risk of insolvency. I'm surprised there's no premium

Watch for a premium on the BTCUSD rate on Bitfinex. That'll be the market believing there's a significant risk of insolvency. I'm surprised there's no premium yet.

amluto 9y ago
If Bitfinex or its sister company is engaging in outright fraud, I see no reason to believe its market data.
- rebuilder 9y ago
  How would they fake the price while allowing trades and BTC withdrawals?
  - cma 9y ago
    https://en.wikipedia.org/wiki/Mt._Gox https://en.wikipedia.org/wiki/Mt._Gox
    - rebuilder 9y ago
      I remember mt. gox very well. They started having withdrawal delays, and then halted withdrawals of BTC as well as USD altogether, precisely because keeping withdrawals open would have been so expensive as to be impossible. I'm saying Bitfinex has no magic way around that, either.
      - cma 9y ago
        That was the end-game. They didn't have enough reserves to cover liabilities long before there were outward signs.
        rebuilder 9y ago
        That's true, but I don't recall any indication of them faking ticker data.
  - elif 9y ago
    ghost orders on the books (e.g. freshly minted unbacked USDT), ponzi-esque withdrawals
  - amluto 9y ago
    I can think of several: - An exchange could lie about the trade ticker. That's easy. I don't know what kind of ticker, if any, Bitfinex publishes or whether the market cares about the ticker. - An exchange could lie about the market data, especially if the exchange has a separate protocol for actual users and for the public at large. It's easy for an exchange to fail to publish an order that should be on the books, and it's even possible for an exchange to show an order on the books that doesn't actually exist. After all, there is no guarantee even on a fully honest and perfectly implemented exchange that you can actually trade against an order just because you see it on the books. - An exchange that's willing to live on the edge can act as the counterparty to trades, which is quite similar to just pretending that an order has a counterparty when it doesn't. Depending on how this were done, it could result in an exchange's BTC reserves not matching the amount of BTC on deposit. We've never seen that happen, of course :) - As mentioned in this article an several others, Bitfinex primarily deals in BTC vs USDT. So the combination of Binfinex and Tether likely has the capability buy an arbitrarily large amount of BTC/USDT on their own account. Here's a potential scheme that could be happening. Bitfinex, Tether, and/or related entities mint USDT that isn't backed by anything. They use it to buy BTC. This has three effects: it raises the price of BTC, it potentially lowers the price of USDT, and it causes them to own a bunch of BTC. This isn't, by itself, terribly useful -- BTC isn't a great asset to hold on to, especially if you expect the price to crash whenever the gig is up. But the bad guys could sell some fraction of the BTC elsewhere in exchange for real USD. This will depress the price of BTC, but, if the fraction sold elsewhere is small enough, the net effect on the real BTC/USD price should be upward. The interesting bits are the effect of the fraud on USDT/USD and on the price difference between BTC on Bitfinex and the price of BTC elsewhere. The former is a major problem, but, as long as enough people are confused as to what USDT is or believe it to be save, USDT/USD will remain near 1. As for BTC spreads, it seems to me that the effect, if any, would be to push BTC up on Bitfinex. After all, if Bitfinex were engaging in such a fraud, they would probably be buying up more BTC on their own exchange than elsewhere, and BTC is notoriously awkward to arbitrage between exchanges. If Bitfinex (hypothetically) decided to try to depress the apparent BTC price on their own exchange, I think they could do it in a few ways. One way would be to wait for someone to submit a sell limit order for, say, 1 BTC in exchange for 11k USDT. Then, in the market data, they lie and say that the user is willing to sell 1.05 BTC in exchange for 11k USDT. When someone matches the order and tries to buy that 1.05 BTC, Bitfinex uses their excess of BTC to make up the difference. (Remember, in this scenario, they're selling less BTC for USD than their buying with their freshly minted USDT.) This is all pure speculation, of course. It's not advice, and it's not an accusation.
artursapek 9y ago
You can also watch confidence in USDT directly by watching its USD price on Kraken: https://trade.kraken.com/kraken/usdtusd https://trade.kraken.com/kraken/usdtusd
- HockeyPlayer 9y ago
  A poster just above reports being unable to short USDT on Kraken, so that market may not be reliable.

Watch for a premium on the BTCUSD rate on Bitfinex. That'll be the market believing there's a significant risk of insolvency. I'm surprised there's no premium yet.

amluto 9y ago

If Bitfinex or its sister company is engaging in outright fraud, I see no reason to believe its market data.

rebuilder 9y ago
How would they fake the price while allowing trades and BTC withdrawals?
- cma 9y ago
  https://en.wikipedia.org/wiki/Mt._Gox https://en.wikipedia.org/wiki/Mt._Gox
  - rebuilder 9y ago
    I remember mt. gox very well. They started having withdrawal delays, and then halted withdrawals of BTC as well as USD altogether, precisely because keeping withdrawals open would have been so expensive as to be impossible. I'm saying Bitfinex has no magic way around that, either.
    - cma 9y ago
      That was the end-game. They didn't have enough reserves to cover liabilities long before there were outward signs.
      - rebuilder 9y ago
        That's true, but I don't recall any indication of them faking ticker data.
- elif 9y ago
  ghost orders on the books (e.g. freshly minted unbacked USDT), ponzi-esque withdrawals
- amluto 9y ago
  I can think of several: - An exchange could lie about the trade ticker. That's easy. I don't know what kind of ticker, if any, Bitfinex publishes or whether the market cares about the ticker. - An exchange could lie about the market data, especially if the exchange has a separate protocol for actual users and for the public at large. It's easy for an exchange to fail to publish an order that should be on the books, and it's even possible for an exchange to show an order on the books that doesn't actually exist. After all, there is no guarantee even on a fully honest and perfectly implemented exchange that you can actually trade against an order just because you see it on the books. - An exchange that's willing to live on the edge can act as the counterparty to trades, which is quite similar to just pretending that an order has a counterparty when it doesn't. Depending on how this were done, it could result in an exchange's BTC reserves not matching the amount of BTC on deposit. We've never seen that happen, of course :) - As mentioned in this article an several others, Bitfinex primarily deals in BTC vs USDT. So the combination of Binfinex and Tether likely has the capability buy an arbitrarily large amount of BTC/USDT on their own account. Here's a potential scheme that could be happening. Bitfinex, Tether, and/or related entities mint USDT that isn't backed by anything. They use it to buy BTC. This has three effects: it raises the price of BTC, it potentially lowers the price of USDT, and it causes them to own a bunch of BTC. This isn't, by itself, terribly useful -- BTC isn't a great asset to hold on to, especially if you expect the price to crash whenever the gig is up. But the bad guys could sell some fraction of the BTC elsewhere in exchange for real USD. This will depress the price of BTC, but, if the fraction sold elsewhere is small enough, the net effect on the real BTC/USD price should be upward. The interesting bits are the effect of the fraud on USDT/USD and on the price difference between BTC on Bitfinex and the price of BTC elsewhere. The former is a major problem, but, as long as enough people are confused as to what USDT is or believe it to be save, USDT/USD will remain near 1. As for BTC spreads, it seems to me that the effect, if any, would be to push BTC up on Bitfinex. After all, if Bitfinex were engaging in such a fraud, they would probably be buying up more BTC on their own exchange than elsewhere, and BTC is notoriously awkward to arbitrage between exchanges. If Bitfinex (hypothetically) decided to try to depress the apparent BTC price on their own exchange, I think they could do it in a few ways. One way would be to wait for someone to submit a sell limit order for, say, 1 BTC in exchange for 11k USDT. Then, in the market data, they lie and say that the user is willing to sell 1.05 BTC in exchange for 11k USDT. When someone matches the order and tries to buy that 1.05 BTC, Bitfinex uses their excess of BTC to make up the difference. (Remember, in this scenario, they're selling less BTC for USD than their buying with their freshly minted USDT.) This is all pure speculation, of course. It's not advice, and it's not an accusation.

artursapek 9y ago

You can also watch confidence in USDT directly by watching its USD price on Kraken: https://trade.kraken.com/kraken/usdtusd https://trade.kraken.com/kraken/usdtusd

HockeyPlayer 9y ago
A poster just above reports being unable to short USDT on Kraken, so that market may not be reliable.