One week has passed since bitcoin exchange Bitfinex announced issues with banking partners and halted fiat withdrawals for its customers. Since then the price of bitcoin has been rallying upwards reaching new highs across global exchanges. As the price surges, Bitfinex prices have been $100 higher than at other exchanges, making traders worrisome a bubble is forming.
Bitfinex Price Spread Causing Fear and Uncertainty
Everybody loves a good bull run, but this particular bitcoin price spike is being seen as unusual. The reason being one of the largest cryptocurrency exchanges has halted USD withdrawals and other fiat currencies until further notice. There was no adverse market reaction to the news, and Bitfinex prices began rising higher than every other exchange. At the time of writing the price per BTC on Bitfinex is $1405 but the price on Bitstamp is only $1306. This price spread has provoked fear and uncertainty among traders due to similar instances in the past.
Traders don’t feel confident in the market because of the 2013 Mt Gox scandal which shook the bitcoin community to the core. For instance in September of 2013 Forbes columnist Donald Marron wrote an article that is eerily similar the current price spike called “How Bitcoin Spreads Violate a Fundamental Economic Law.” Marron notes that Mt Gox started having some price fluctuations when the exchange had issues with Wells Fargo and Dwolla. Price spreads began to happen slightly then picked up when Mt Gox suspended USD withdrawals.
“Spreads briefly normalized until Mt Gox announced that it was suspending U.S. dollar withdrawals,” the author writes.
Mt Gox had become a Roach Motel (or, if you prefer, a Hotel California) for U.S. dollars. Traders could check their dollars in, but they couldn’t check them out.
‘A Territory of Greed’
Bitcoin.com spoke with Petar Zivkovski, COO at Whaleclub, the Hong Kong-based bitcoin trading platform, about the current market price trends. Zivkovski said he’s been getting together with many industry experts and insiders over the past few weeks, and the tone is generally bearish.
“I personally believe we are entering a territory of greed when it comes to bitcoin prices,” Zivkovski tells Bitcoin.com. “We’ve seen less than 2% of positions come in the past 24 hours to short BTC/USD on Whaleclub. That means almost nobody out of millions of dollars in volume is betting against the currency.”
The reason is simple. Bitfinex is leading BTC/USD price at the moment while other USD exchanges follow. Bitfinex, however, has cut off USD withdrawals, which has worried many of its customers who have only one option left to take their funds off the platform: to buy BTC with their USD, then proceed to withdraw the BTC. This process artificially props up the price, which results in the $100 spread we’re seeing.
Withdrawals and Thinning Books
The Whaleclub executive says figures show that fifty percent of Bitfinex’s cold wallets have been drained in the past couple of weeks due to customer withdrawals.
“As a result, the books on Bitfinex have become even thinner, particularly on the ask side,” explains Zivkovski. “So when a customer comes in to buy BTC (at market, because of the urgency), they move the price upwards more easily. Which is why we’ve seen a perpetual price rise. This reminds me of the Mt Gox debacle, where price only kept going up, for the same reasons (blocked USD withdrawals).”
Bearish Sentiment During All Time Price Highs
There hasn’t been any word from Bitfinex since April 20 and traders are wondering what will happen if and when the exchange allows fiat withdrawals. Aside from that particular uncertainty, Zivkovski says insiders are still bearish even with the current spike. The network scaling quagmire has many people worried, especially since nobody has a solution that everyone can agree on, Zivkovski explains.
“Once the exchange withdrawal issues get resolved, or a bearish event hits (such as an exchange liquidation), bitcoin’s price is likely to drop aggressively since it’s currently artificially inflated,” Zivkovski adds.
What do you think about the current situation with Bitfinex and the price right now? Do you think things are artificially inflated? Let us know in the comments below.
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