Although the price of bitcoin is trading almost at its all-time highs from March, concerns related to the state of the network’s infrastructure are hurting the mood.
Chief among concerns are the ongoing issues at British Virgin Islands-based digital currency exchange Bitfinex, as the market’s dominant US dollar exchange saw banking problems appear seemingly out of nowhere earlier this month. Just weeks ago it came out that Bitfinex has been unable to process outbound wire transfers from the banks it works with in Taiwan. The issue, the exchange said, was that Wells Fargo, acting as a correspondent bank for those Taiwanese institutions, had refused to handle those transactions.
Complicating matters is that some fear Bitfinex’s problems could prove systemic due to its ties to other exchanges. Further, with bitcoin and litecoin withdrawals still barred at major exchanges in China following a crackdown by the country’s central bank, it’s difficult to determine just how much of the market is functional at the moment.
Long-time bitcoin investor and blockchain startup founder Vinny Lingham went so far as to call the situation “perplexing”, saying that he’s unable to read the current situation. (And this statement comes from an investor nicknamed “Bitcoin Oracle” for his ability to predict price movements).
Nejc Kodric, CEO of digital currency exchange Bitstamp, called the situation “similar to Mt Gox”, a reference to the now-defunct Japanese bitcoin exchange that collapsed in 2014, resulting in millions of dollars in customer losses.
Kodric further stated that he doesn’t believe the current price reflects “organic growth”, while worrying that issues could compound, creating a serious issue for the market as a whole.
“There are three things that an exchange can have trouble with. The first is having a hack, the second thing is being shut down or warned, or anything around regulators, and the third is getting your accounts shut down,” he said, adding:
“You can survive the first two. But the third is a big one. That’s a lethal injection for an exchange.”
Other commentators have largely brushed off these concerns, expressing optimism that the exchange – which paid back customers after a $65m loss in a matter of months last year – has shown the capacity to weather blows.
Already, the exchange is said to be looking for other banking options.
Other market observers have discussed fears that a domino effect could play out should Bitfinex’s banking issues prove prolonged, or worse, fatal to the health of the exchange.
So far, it seems investors are taking precautions.
An address identified as a Bitfinex cold wallet (where it keeps user funds away from live internet connections) shows customers are withdrawing bitcoin holdings in the account steadily.
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