Hacker News Reader

Comment by patio11 | Hacker News Reader

Hate to quote myself, but see the P.S. here: http://news.ycombinator.com/item?id=5568610

If I were a gambling man, I'd say this is quite likely to be shoe #1.

Hardly shoe #1, more like #8 or #9. With the take down of Liberty Reserve, the killing off of a number of exchanges and interfaces to exchanges, its pretty clear the US Government at least has decided to focus for a time on the financial infrastructure which underpins a big chunk of Internet criminal activity. The privacy advocates are getting somewhat caught in the crossfire.

As a company that works with internet advertisers, we see the shadowy parts of the web shimmering there on the periphery, lots of people are trying to scam Google out of some of its advertising revenue, it is a full time job to identify and quash fraudulent traffic here at Blekko, I know from experience that there are many folks at Google that do nothing but that.

But more than that, it says that these activities have reached the nation-state level of attention. Which puts the global losses in the 150 to 200 billion dollars annually.

The effect of that is what Patrick experienced where regulators start effectively 'regex' banning types of activities that are associated with these activities. It's a cold compress on an arterial bleed, not a solution but something to stem the blood loss while other measures are being taken.

It is really all about cash though. When crime doesn't pay, people don't do it. So focusing on making it hard to get paid is the strategy it seems to work on Internet criminal activity. If I had to bet I'd say that someone in the Treasury department has a goal of (ideally) making it impossible to use BitCoin to facilitate criminal activity, through a series of regulations requiring transaction reporting and verification, killing off exchanges that don't do that, and pressuring partners to do the same.

It doesn't really make it that hard to cash in. See http://localbitcoins.com . You'll just get a slightly lower exchange rate. If they thought they didn't want people receiving traceable wire transfers from Mt. Gox, imagine how little they will like the alternative they are pushing people to - in-person cash trades.

>The effect of that is what Patrick experienced where regulators start effectively 'regex' banning types of activities that are associated with these activities.

What Patrick experienced is a symptom of the rules surrounding ACH transactions - namely that they can be charged back up to 6 months later (1 year in some cases). That makes banks squeamish about accounts receiving large numbers of them. I don't think ACH transactions in general are "associated" with criminal activity - most paychecks are delivered this way.

In person cash trades are easier to bust. Especially if there's much in the way of volume or the transactions are sizeable.

They are also far more hassle and potentially dangerous.

Don't pretend that making electronic transfers harder wouldn't suppress the market to some extent.

Yeah, but there is nothing illegal about an in-person cash trade, so what are you going to bust them for? (Well, I suppose the cops can always find something to bust someone on...)

There are all sorts of inventive ways the cops can seize money, especially if the amounts are both large and frequent.

In some places carrying huge amounts of cash is more than enough to get the cash temporarily impounded pending investigation, even with no other immediate suspicious circumstances.

Besides which, the point was that (in general) forcing users into these sorts of arrangements is much more onerous on them than just sorting it all out electronically.

We probably saw the beginning of this problem a month ago - https://news.ycombinator.com/item?id=5707936 . I can't imagine that the two are not related.

Also from the https://support.mtgox.com/entries/21649594-Withdrawals-and-D... :

OKpay has made the decision not to work with any Bitcoin exchanges as of May 29, 2013.

Dwolla has closed our account as of May 15, 2013.

All of the recent closures don't exactly instill confidence. Still, it might be possible to form or partner with a Japanese entity and receive domestic transfers from them.

I agree. I'd read this statement as: none of our partner banks will do USD withdrawals for us anymore. We think we might be able to find a new bank within two weeks.

Yep. I'd bet real money on that being the root cause. I'm not so sure about the new bank thing though.

I don't know about US law, but in Europe if you're a financial institution and you suspect a customer transaction is involved in money laundering or a similar it's a criminal offence to inform the customer without first clearing it with the relevant legal authorities.

If there is some kind of investigation going on MtGox might be completely unaware of it, saying "there's a backlog" is a pretty common way to provide cover while such an investigation is on-going.

One of the reasons you get fully licensed as a financial institution by regulators is that you get some level of legal protection/ring-fencing from the activities of your own customers.

(IANAL but I used to work on real-world forex trading desk in a previous life, hence had to undergo the mandatory FSA training)

In the UK, you can never inform the customer - that is the offence of "tipping off".

IIRC You can with the consent of the FS(C)A

Unfortunately true. I'd hate to tell everyone with money in mtgox that it is time for a bank run, but...

Luckily, everyone with deposits in Mt.Gox can convert them to bitcoins and send them to some other address. This is one of the benefits of Bitcoin.

If mtgox crashes bitcoin crashes, at least temporarily. You'll end up with your bitcoins safe, but they won't be worth $100+ anymore (if ever again).

Unfortunately, nobody will be willing to sell bitcoins for USD on mtgox if they can't ever get their USD out.

Right, but my guess is people who have dollar holdings on mtgox aren't going to find it as easy now to sell them in order to do such a transfer.

This assumes they haven't already spent some of their depositors' bitcoin and can run out. (Not claiming they have done this, just pointing out this scenario is possible)

> Luckily, everyone with deposits in Mt.Gox can convert them to bitcoins and send them to some other address.

If you have US dollars on Mt.Gox, and no one can take US dollars out of Mt.Gox now and there is very low confidence that this will change in the future, its going to be very hard to find anyone give up any other currency or virtual currency for US dollars -- whether you want bitcoins, yen, slips of latinum, or triganic pu, no one is going to give you them for dollars on Mt.Gox if dollars deposited on Mt.Gox are trapped.

Sure they will, coinbase will quite happily turn them back into USD for you.

If you have bitcoins on Mt.Gox, sure, you can get USD for them elsewhere.

The issue I was raising was that if you have USD on Mt.Gox and people don't think USD will be able to be extracted from Mt.Gox, you will have trouble converting your USD to bitcoin to get it off Mt.Gox, because people who have bitcoin on Mt.Gox will be reluctant to convert it to USD on Mt.Gox.

That's true, but I'm unclear why you'd store USD for any length of time on mtgox anyway.

It takes a long time to transfer money into MtGox and with the wild price fluctuations it might be prudent to wait for a better price instead of buying at the current market price the second the transfer clears.

> That's true, but I'm unclear why you'd store USD for any length of time on mtgox anyway.

The same reason you'd keep any currency in an account tied to a particular marketplace: liquidity that allows you to trade without the delay of getting money into the marketplace from somewhere else.

Exactly what I did when I heard about dwolla no longer offering withdrawals for MtGox....I love coinbase! It's so simple and the UI is clean.

That seems to be what's happening at the moment. I initially assumed this announcement would cause a panic sell-off, instead it seems as if a lot of users are now converting their USD back into BTC in light of the hiatus. The exchange rate has ticked up pretty steadily as a result.

If it was just a MtGox only issue, then bitcoins on MtGox ought to be at a premium compared to the other exchanges. But if you look at http://bitcoincharts.com/markets/ it seems like MtGox is perfectly in line with the other markets - within half a dollar of Bitstamp and actually cheaper than BitBox etc.

This is true, but Mt. Gox historically has the lowest exchange rate as they have far more liquidity than other exchanges. Gox is also the primary indicator against which other markets rise or fall, today is no exception.

In an unrelated note, big fan of your site.

Check again -- look at http://bitcoincharts.com/markets/currency/USD.html. There's a significant premium on MtGox. At the time that I'm writing this, the values are

    mtgoxUSD:     112.99
    bitstampUSD:  107
    btceUSD:      106.87
    cbxUSD:       106.12
    vcxUSD:       105
    bitoxUSD:     95

I get a different version checking now - MtGox isn't even the most demanding of Bitcoin:

    icbitUSD    100
    bitstampUSD 103
    btceUSD     106
    cbxUSD Camp 107
    mtgoxUSD    109
    rockUSD     109
    bitboxUSD   118

It's tied with rock, and as I said, below BitBox. Looks like Bitstamp has diverged more, though.

The weird thing is that MtGox made a deal to (effectively) sell themselves to Coinlab which would have either fixed these problems or at least made them not Gox's problems. But then they went back on the deal.

I wonder about the economics. Could this just be an issue of them deciding to close down altogether? I don't know why, but this read to me more like a run on a bank, rather than a compliance issue. What did people do in the Great Depression? Bank holidays....

Unlikely. MtGox is not a bank. They charge commission on every trade and make pretty good money. They were running just fine 1 year ago when the volume was few times less so it's unlikely they are having financial problems now.

Did they shut you down for risk or for using a personal account for business?

Reply on news.ycombinator.com