For the last few weeks, major cryptocurrency exchange Bitfinex has been fighting against a fiat lockdown that is keeping them from being able to accept or send funds in USD, euros, and many other currencies. This has happened due to their Taiwanese bank refusing to do business with them anymore amidst issues with Wells Fargo. But the effects are much more far-reaching.
Understanding the Dynamic
U.S. banks are still somewhat on the fence when it comes to getting involved with cryptocurrencies, such as Bitcoin. Due to very regulated markets dealing with KYC/AML (Know Your Customer/Anti-Money Laundering) laws, it can be a risky venture. However, not all countries have the same regulations in place, leading many to team up with banks outside of the U.S. In the case of Bitfinex, this ends up with them working with a Taiwanese bank that adheres to all of their own country’s regulations, but due to an issue with Wells Fargo as an intermediary, they’ve been effectively cut off. It’s important to note that this has nothing to do with what’s legal and illegal, rather with Wells Fargo’s fear of future regulation and being tied up with it, as it would seem.
Locking Down Deposits and Working Towards a Fix
Bitfinex is actively working to restore full functionality through partnering with a new bank or payment processor. It’s unclear how long this will take, but they have given their word that they are working as fast as possible – after all, this does directly affect their business, and they’re losing money while this is being drawn out.
In the meantime, there are some good notes as to what’s going on:
- All cryptocurrencies can still be deposits, withdrawn, and traded as usual
- All fiat is still in the hands of Bitfinex, such that they are still completely solvent and are not at risk of being unable to repay everyone
- They are currently working on a temporary solution that allows users to make one fiat-based withdrawal, which will be manual, while the situation is cleared up
To that end, aside from those who want to deposit and withdraw fiat, there are zero issues with continuing normal usage of the exchange.
A Spiking Bitcoin Price
Bitcoin’s price on the exchange has spiked a great deal as a result of the ongoing tensions. Many are afraid they will never be able to withdraw their fiat, and being able to withdraw BTC now and cash it in elsewhere has a lot of value to those that need money and cannot wait for the exchange to (hopefully) allow withdrawals in the future. As a result, it has people on both sides: some are willing to take the risk for a 10% (approximately) premium over the normal price, while others are not. With Bitfinex’s past, however, they have always done the right thing historically.
What Can We Expect?
This situation is dealing with one of the most popular and liquid exchanges there are, and it will absolutely be a huge step in one direction or the other depending on how everything turns out. Some are making claims that this is a Mt. Gox situation all over again, but Bitfinex has been fairly transparent throughout the ordeal and doesn’t show any signs of being insolvent (in fact, claiming the opposite, along with transparency reports). That said, there are always risks involved, and when it comes to banking and crypto, we’re still in a somewhat gray area, though more and more countries are starting to put forth their own laws and regulations (or lack of) and show support for these forms of digital cash. One thing is for certain, which is that this very high-profile situation is going to be setting precedent for the future, and it’s safe to say that Bitfinex will do everything in their power to get everything up and running again, making users whole and once again returning to their status as one of the most trusted exchanges.