Over the course of the past week, many traders have been discussing the significant price differences between exchanges. Most notably, the spread between Bitfinex and a majority of other exchanges’ rates is considerable.
The price difference at Bitfinex compared to other exchanges is roughly $110 at press time. The large spread has been ongoing for the past five days and began when the exchange halted fiat withdrawals. The price difference and suspended withdrawals have quite a few skeptics concerned the community could once again revisit the bad memories of the Mt Gox fiasco in the past.
The 2013 Mt Gox Price Difference
During the beginning of the bull run in 2013 and throughout the cryptocurrency’s all time highs that year price spreads began to vary. The biggest price difference was represented on the now defunct bitcoin exchange Mt Gox and started around August of 2013. During this time warnings of insolvency had begun to reach the ears of the community and many people believed the price differences were a bad omen.
Economist and author Konrad S. Graf wrote about the subject at the time in a piece called “A banking risk premium: Mt. Gox XBT/USD spread over Bitstamp.” When the difference occurred, Graf noticed Mt Gox users were having difficulties, particularly with USD withdrawals.
“According to user reports, whereas Bitstamp reliably and promptly processes both deposits and withdrawals of fiat currencies, Mt. Gox’s ability to do so, particularly with regard to US dollars, has become highly unreliable in the eyes of more and more market participants,” explains Graf on August 21, 2013.
The most reliable way to remove value from Mt. Gox is therefore perceived to be buying Bitcoin and withdrawing it, a simple, quick and fee-free procedure. This generates an on-exchange premium for Bitcoin and a steep discount for dollars due to the perceived relative risks and costs of taking delivery of the latter.
Two Trading Bots Dubbed Willy and Markus
Exchanges currently having problems process fiat withdrawals is one factor being attributed to this April’s spike and price spread variances. A key difference between now and 2013 was the use of a Mt Gox trading bot called “Willy.” The infamous bot was spotted in September of 2013 but really caught attention the following December.
That December bitcoin hit an all-time price high across global exchanges with noticeable price differences between Mt Gox and others.
- 1242 USD (Mt Gox ATH)
- 1163 USD (Bitstamp ATH)
- 1175 USD (Bitfinex ATH)
In an expose called “The Willy Report,” a few bitcoin proponents noticed peculiar activity at Mt Gox. It was then discovered that two trading bots called Willy and Markus were actively driving up the premium of bitcoin on Mt Gox on a regular basis since September 27, 2013. According to the researchers of the report, the Willy account continued to trade on Mt Gox until January of that year.
Based on my own personal observations, Willy continued to be active until January 26th: buying up 10-20 BTC every 5-10 minutes, for around 100 BTC per hour.
There doesn’t seem to be any evidence that Bitfinex is suffering from the same exploits as Mt Gox did in the past. In fact, the exchange has vehemently denied insolvency and has explained that other trading platforms are dealing with the same banking hardships. “We want to apologize again for this continuing inconvenience, and to assure our customers that we are doing everything to get back to normal operations,” Bitfinex has explained to its clients.
The Interesting Activities With Tether and Poloniex USDT Markets
Another interesting factor is the price difference between the cryptocurrency exchange Poloniex and other exchanges. At press time one bitcoin is 1331 USDT on the Poloniex trading platform but most people don’t realize USDT stands for the digital currency Tether. Poloniex doesn’t use fiat on its website so instead it uses Tether, a digital asset that’s supposed to be backed by one U.S. dollar on a 1-to-1 ratio. Since the withdrawal issues started at Bitfinex, BTC-e and other exchanges, the cryptocurrency Tether has dipped in price under the $1 mark.
At present, one Tether is priced at 0.91 cents and that is the reason why the price per BTC on Poloniex looks so much higher, but it’s really not. A recent blog post by entrepreneur Jimi Smoot describes the situation quite well and he believes Tether’s own fiat wire capabilities have also been suspended.
“As of this writing, however, Tether and Bitfinex are both having issues sending and receiving wire transfers in US dollars,” explains Smoot. “You wouldn’t know this by looking at the Tether twitter/website/etc but guess who does know — The market knows. Regardless, it seems that the market believes that Tether has become slightly less Tethered. I wonder how much more the price will slide each day that the wire capabilities are down.”
Arbitrage Opportunity or Risky Business?
Whatever the case may be, people find the price spreads odd, but some think there are arbitrage opportunities. Arbitrage is buying from one exchange at a lower price and selling at a premium at the exchange with higher prices and profiting from the difference. There are many posts on social media that discuss the Bitfinex arbitrage ‘opportunity’ giving step by step walkthroughs on the procedure. However, some believe using the opportunity to profit may be risky at an exchange suffering from fiat withdrawal issues, as skeptics say other types of withdrawal suspensions could follow.
Just as people were worrisome about the price spreads in 2013 the same could be said today, as people tend to agree right now, that $100 price spreads are not usual occurrences and should cause skepticism.
What do you think about the price differences between Bitfinex and other exchanges? Let us know in the comments below.
Images via Shutterstock, Poloniex, Bitcoin Wisdom, Pixabay, Tether, and BTCreport.