What would happen to the crypto markets if the Bitfinex exchange saw a fate similar to Mt. Gox? Although seemingly unlikely, due to evidence, the impact of such an event might be significant.
Continued negative headlines for Bitfinex and the possibly associated Tether (USDT) stablecoin have brought concern into the public eye. In 2017, the Commodity Futures Trading Commission (CFTC) subpoenaed Bitfinex and Tether.
Most recently, Bitfinex saw accusations from the New York Attorney General of Bitfinex hiding data surrounding an alleged $850 in lost funds, utilizing Tether in the process. The ordeal also includes involvement from associated payment processor Crypto Capital, over in Panama.
In response, Bitfinex stated many of the accusatory claims as inaccurate, according to Crypto Potato’s reporting. In November of 2018, Tether did provide some proof of confirmation surrounding its funds, although an official audit still reportedly has not been conducted, according to Crypto Potato.
Mt. Gox is an infamous name in crypto: The exchange operated in the early days of the Bitcoin trading, fielding the majority of global Bitcoin transactions for the crypto asset.
In 2014, the top-ranked Mt. Gox exchange suffered maybe the most famous intense hack. The exchange then proceeded to inhibit asset withdrawals, completely shutting down the operation after. Total bitcoins lost due to the event equaled about 844,408. The exchange went bankrupt as a result of the hack:
As noted, “It was found that the reason the attackers succeeded was that the exchange stored most of the cryptocurrency that was stolen in a web-based hot wallet, which had a vulnerability that the hackers took advantage of.”
The Mt. Gox situation was a dramatic affair, which many in the crypto space still reference, even in 2019. A much smaller market back then, the crypto space felt a significant impact from the events. Whether directly associated with the event or not, the chart shows a selloff of more than 50% for BTC price in the days surrounding the Mt. Gox events.
Image Courtesy: TradingView.com
At a market cap of roughly $175 billion, the crypto market is still relatively small compared to other traditional markets. A high profile exchange ordeal likely would still have grave effects on the market. Additionally, the roughly 844,408 bitcoin lost via the Mt. Gox ordeal would be a massive dollar figure at present, taking into account the current price for BTC.
As of this article’s writing, Bitfinex is running about $107 million in daily crypto trading volume, according to CoinMarketCap data. This number is not particularly high for the current crypto landscape, although a high profile negative event concerning the exchange likely would still have a significant impact.
Starting up operations in 2013, Bitfinex has been in crypto for a considerable time. Such an entity seemingly holds more weight on its shoulders than a new service in terms of reputation and impact. If Bitfinex went down entirely, the event likely would breach the public’s trust, as well as bring in fear, uncertainty and doubt (FUD) from the mainstream public, which could take significant time to repair. Crypto, on the whole, could lose credibility.
Additionally, on the monetary side, such an event could cause panic and crypto asset selling, causing prices to fall, possibly very quickly. This could lead to further bearish days. In the hours surrounding the recent news regarding Bitfinex and the New York Attorney General on April 25, bitcoin’s price dropped several hundred dollars or roughly 10% of its value. This price action may or may not have been associated with the news. The timing, however, might suggest a correlation.
In contrast, however, a high profile exchange collapse might not directly affect those holding their asset private keys. This practice is commonly advised in the crypto space.
All of this certainly is not to say that Bitfinex will go down, or even that such an event might be likely. Sometimes it’s simply fascinating to look at the possible ramifications of certain circumstances if they did occur.
*This piece contains opinions, evaluations, and interpretations from the author.
