Bitfloor shuts down
bitfloor.com
bitfloor.com
It's highly likely that Bitfloor was receiving many times that volume from many more payers with less history and, let me be charitable here, less ability to convince the fraud department that there was a legitimate business causing the deposits. It was obvious they were going to be shut down.
P.S. If any of you think this won't happen to Mt. Gox I encourage you to consider "How high do I rate my understanding of risk controls and regulation at Japanese commercial banks?"
I know a lot depends on the specifics of each situation, but haven't heard a lot of details on this from people running single-member bootstrapped SAAS LLCs before :) .
Generally, in the case of fraud, the bank is the one who is on the hook. They must make good on, for example, a chargeback.
When your entire business model is built around making 2-3% on large pools of money, it's critical to squash risk. The losses from one fraud event can wipe out the LTV of a small business account.
This is a good example of why we need Bitcoin. The bank tells you that you cannot use your accounts a certain way? Fine. Use Bitcoin and nobody can stop you from receiving as many payments as you want.
Both banks and bitcoin business regulate themselves mostly arbitrarily. On top of whatever rules they have to follow.
Then we are basically subject to competition, and banks have a limited amount of that. This places most of the power on their side and against the user.
This would be analogous to a single dev using a [cheap|free] personal license on software for commercial activities, which is de facto OK till you hit a certain size. Then he would be better off purchasing a commercial license.
This has already happened to Mt. Gox multiple times. At one point they took a French bank to court to get their account reopened[1]. Currently they use a Polish bank for SEPA transfers in Europe.
Mt. Gox knows that they cannot rely on a single bank account. They are prepared for such events.
If I'm lucky, maybe they'll offer to convert funds to BTC and send them to an address.
I "invested" $1,000 in BTC during the early hype as it was approaching $32.00. I told my co-workers how cool of a concept it was and that my investment was sure to pay off with a skyrocketing price.
After months and months the price drops and drops. My $1,000 is worth $200. I go through a ridiculously long process of proving my identity to Mt. Gox and Dwolla just to get real USD back at 1/5 their original value.
Now if only I had kept it in there for the long haul, I'd have my $1,000 back.
It's precisely this volatility that personally makes me skeptical of it truly reaching a critical mass of any sort.
He would in fact have about $3,000 today (just 2 months after his comment). Of course, yesterday he would've had $2,000, and a week or so ago he would've had about $8,000.
It'll be interesting to see how Bitcoin plays out.
I wish Bitfloor had provided this info so that others could defend against the same fate.
There was a hidden point to that.
Being a currency brokerage company requires millions in compliance / certification / regulatory fees. Its not like the big NY banks are going to just let people get their money out of the system without a fight.
http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001....
"A person must exchange the currency of two or more countries to be considered a dealer in foreign exchange. Virtual currency does not meet the criteria to be considered 'currency' under the BSA, because it is not legal tender. Therefore, a person who accepts real currency in exchange for virtual currency, or vice versa, is not a dealer in foreign exchange under FinCEN’s regulations."
Edit: Just need to clarify that Money Transmitter regs do apply.
I've always figured that Banks must be fearful that should a customer of their not be compliant enough, they could be considered out of compliance as well. For all the big news stories we all hear of ignoring or circumventing regulations, all I ever see first-hand is outright paranoia and fear.
I am sure the fraud/risk/laundering scoring systems see that kind of thing as 10 different kinds of trouble.
Risk management is controlling your exposure to potential problems, not reacting to proven problems.
edit: For those that don't know how LocalTill operates -- The merchant would forward a "deposit" to LocalTill and one would be instructed to deposit a dollar amount plus a processing fee with a unique # of cents to LocalTill's BoA bank account. Upon electronic notification that the amount was received, LocalTill would send the money minus their fee on to the business which set up the transaction.
This is an ongoing phenomenon. The first time I (and I presume others) seem to hear about a company is when they're closing up shop.
Bitfloor, Inc. is a New York City based online exchange. We run a marketplace for Bitcoin buyers and sellers. We also focus on spreading all that is great about Bitcoin and helping people purchase and use their coins with ease.
I wish they'd say why they're closing down. I don't love others' failures, but I sure do love learning from them when they happen. A postmortem would have made an interesting submission; a five sentence au revoir from an otherwise unknown company, not so much.
I don't quite understand why this is grabbing the attention it is; this isn't like a well known company such as 37 Signals is abruptly saying pip pip cheerio. (Having said that, at least they'd write an interesting goodbye note.)
In essence, their post is about as content-free as imaginable, which is a shame because it was a good opportunity to educate others.
I'm frustrated that they have given so little information out, my recent transaction represents 100% of my disposable income. Perhaps part of the fault is mine, but I thought they were reputable and no warning was given. They are also no longer accepting deposits or acknowledging any in progress deposits.
What makes it gambling rather than an investment?
I expected it to grow very fast. Bitfloor seemed reliable, and many people seemed to be trading on it. I thought it was sound. Even if I lost 100%, I expected the loss to come from my failure as a trader, not from my exchange's failure as a business.
If I do get my money back, I will probably try to join a different bitcoin exchange, though more carefully. I've been trying for almost a month(since btc was about $90 before the crash) and it's incredible how difficult it is to trade bitcoins.
Maybe I'll open my own exchange.
BTC operates in a pretty gray market. The companies involved are not regulated and perhaps violating existing regulations. Mt Gox et al are not ETrade. Any money in BTC should be money you are totally OK with losing.
(Edit, after a quick google search, it appears that FT is just now starting the refund process. http://www.pocketfives.com/articles/full-tilt-claims-adminis...)
Excellent work by my government to protect me on this one.
Apparently as a Full Tilt user I'm a "fraud" "victim".
Excellent work by my government to protect me on this one.
But don't let that get in the way of your snarky libertarianism.
[1] http://blogs.reuters.com/felix-salmon/2011/09/20/full-tilt-p... [2] http://online.wsj.com/article/SB1000142412788732405030457841...
The most amusing thing in the fraud complaint is what the US Govt alleges as the cause: The US Govt's regulations regarding money transfer into gambling sites.
So yes, job well done, US Govt. Job well done.
"The Amended Complaint further alleges that, in or about the summer of 2010, Full Tilt Poker’s payment processing channels were so disrupted that the company faced increasing difficulty attempting to collect funds from players in the United States. Rather than disclose this fact, Full Tilt Poker simply credited players’ online gambling accounts with money that had never actually been collected from the players’ bank accounts."
Pokerstars was subject to the same laws, yet they had fully segregated accounts and could pay everyone 100% of their account balance.
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According to a balance sheet prepared by Full Tilt Poker, as of March 31, 2011, Full Tilt Poker owed players from around the world over approximately $390,695,788 but had only approximately $59,579,413 in its bank accounts. Full Tilt Poker relied on new deposits from players to ensure its ability to fund withdrawals to players’ accounts.
Rather than protect player funds as promised, Full Tilt Poker distributed hundreds of millions of dollars to its owners…
Defendant Lederer personally received at least approximately $42 million, including approximately $37,856,010.92 in ownership distributions and at least $4 million in “profit sharing” payments…
Defendant Ferguson was allocated approximately $85,161,305.88 in distributions. Tiltware records reflect that approximately $25 million of this sum was actually transferred to Ferguson’s personal accounts, with the remaining balance characterized as “owed” to Ferguson.
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Should internet gambling be illegal? Probably not.
Was it illegal when FT was operating? Definitely.
Is that somehow an excuse to engage in massive fraud?
Blaming the Federal Government for shutting down a Ponzi scheme before you "got yours" at the expense of some downline? You're deluded, incredibly dishonest, or both.
Are you saying you knew about the fraud at FT (disqualifying the 'victim' part), or you don't believe they committed fraud?
The general premise is this: match bids on mtgox with asks on bitfloor when transaction fees are less than the spread. Then later on you have to balance with a bid on bitfloor and an ask on mtgox. Send coins between exchanges to fund accounts. If cash runs low on one exchange(it would be bitfloor) then the plan was to manually fund bitfloor with capitalone p2p(no transaction fees) and withdraw using dwolla($0.25 transaction fee).
The big problem was the lack of liquidity in the bitfloor market. We figured if we brought bitfloor prices down to mtgox prices we could attract people who didn't want to go through the onerous mtgox verification process. People were, more or less, turned off by bitfloor by the 5% markup that you pay to buy bitcoins on bitfloor.
There are plenty of arbitrage bots running in European exchanges that are making money. Some are on github.
I'm going to write the idea off as abandoned for now. Mtgox is crap. Bitfloor is gone. B24 has been offline for a while. The platforms just aren't there yet.
Yes, the upfront cost is large. But it seems likely that you'll own the market basically overnight.
1) The available APIs sucks. MtGox's trading engine tops out at 37TPS. Thirty seven. Price swings trigger situations where you can have minutes of lag where price discovery is impossible. These are, unfortunately, the times where arbitrage is most profitable if you have reliable market data. 2) Gox's socket API magically drops cancelled orders here and there so the order book is unreliable. 3) The markets lack liquidity and, although there are profitable strategies that can be exploited, they are only going to make you a few thousand a day at most. This isn't going to attract much attention. 4) There is no historical data to backtest strategies...not that it would be helpful while bitcoin behaves like a penny stock.
HFT for bitcoin is pointing a bazooka at a cockroach. Price lags between exchanges correct on the order of minutes--not milliseconds.
MtGox is a toy for now. So I was(maybe still am) building a toy trading bot to match ;D.
You can only participate in trades in the other direction (buying bitcoins on A, selling on B) until and unless you can move the cash and bitcoins between the exchanges, which may take hours or days.
Of course, there are a lot of assumptions built into these numbers: The numbers assume your trading is sufficiently small compared to the total market size that your operations won't change prices, and the exchanges and blockchain charge you no transaction fees. These aren't absolutely true in practice, of course, with the consequence that prices can deviate a little between exchanges without creating an arbitrage opportunity.
Shorting would make things easier, because then you wouldn't have to keep the coins in your account at A in order to sell them, you could borrow them on demand, sell them, and then transfer from B or your wallet at leisure.
Likewise, being able to move funds quickly would help you out by reducing the time when half of your capital is out of the game because you're moving it around (I'm assuming you'll transfer 10 bitcoins to A and $500 to B after you did the trade to get back to the original situation), and the other half is half-useless because it can only be used to trade in one direction.
But neither of these features is necessary to allow you to make guaranteed profits when (or if) sufficiently large price differences appear.
Depends on your definition of "sufficient." If you're no longer small compared to the market, i.e. you have enough money that a small fraction of your capital can completely fill the arbitrage-able offers and move prices back into line, in that situation moving money between exchanges is no longer an issue.
But you don't need to be that big to merely make a risk-free profit when the right kind of pricing anomaly appears. And if there are enough small actors doing this, their combined efforts can stamp out pricing anomalies just as effectively as a single large actor.
I have a lot of FIX connectivity code just lying around now :(
Sorry to hear the bad news, guys.