They were a US corporation with a US bank account and registered with FinCEN. What could be the reason their bank account was closed? Overly-cautious risk department at their choice of bank?
This is pure speculation but I think it could have something to do with them using CapitalOne's P2P transfer for high volume business transactions. I'm sure they violated the terms of service somewhere.
Remember how a few weeks ago when the USGov released a reported acknowledging BTC as a currency? Remember how everyone thought that was a great thing?
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.
I'm pretty sure the NY banks have things they think are much more important to worry about currently - people "leaving the system" isn't a blip on their radar yet.
"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.
Regulations certainly apply. For example, in the case of Bitfloor's local BoA deposit, a third party was accepting cash deposits and forwarding the money to the exchange. That requires the third party to be a money transmitter and could have repercussions if the bank account was also with BoA.
It's hard to get and keep a bank account for any FinCEN registered purpose, without bringing Bitcoin into it at all.
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.
looking at their twitter history it looks like they had bank accounts closed on them left and right. They had a lot of different people depositing cash in different places, lots of wires maybe ach.
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.
My guess? They had two avenues to get local cash into the system, CapitalOne P2P and Bank of America (LocalTill, LLC). By taking cash, LocalTill, LLC would be required to be registered as a money transmitter in NY State (as well as the token FinCEN registration). They almost definitely were not, so once identified or threatened, they probably closed up shop, closing off that route of funds. If the exchange's bank account was also with BoA, they could have easily identified that and decided they didn't want to be a part and would close it. Something similar could have happened at CapitalOne if the P2P TOS were being violated in some way.
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.
Never heard of them either but if you click About you see this:
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.)
I think they said why: one of their key bank accounts is being closed against their wishes. It's not easy to get an account like that opened, and when it's closed the money has to go somewhere. In this case, back to the clients.
Bank accounts can be closed for all kinds of reasons. They don't really say what happened or why their account is being closed, or why they aren't being tough cookies and working around this blip, if possible, etc.
In essence, their post is about as content-free as imaginable, which is a shame because it was a good opportunity to educate others.
They're probably too busy trying to return all the client funds to write a beautiful blog post about what happened (or rather, is happening right now). Bitfloor is active on Twitter--it might be better to tweet at them on the weekend to say you're interested in a follow-up post (mortem).
I just placed money into my account a day or two ago, and have been waiting for bitcoin prices to stabilize. So I have USD in there and no way to convert it and get it out without giving them my gov. id. and bank routing numbers. I've only accessed Bitfloor via Tor to keep my anonymity. So fuck that (the id and bank details part).
If I'm lucky, maybe they'll offer to convert funds to BTC and send them to an address.
Actually if his comment causes the poster to reflect on the fact that perhaps this was a mistake in the first place and a lesson to be learned, the poster and anyone reading this thread might be better off.
I don't see any reason his comment should be down-voted, the others just sound emotional and butthurt about the situation. Sorry you guys are so torn about this stuff, but if anything is useless, it's this meta-conversation about his comment.
Full context, in a recent post jared admits/confesses:
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.
Now if only I had kept it in there for the long haul, I'd have my $1,000 back.
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.
This is the classic "buy high, sell low" pattern seen when investors get into a volatile market with a lot of hype. If you can't afford to lose it or at least let it ride, put your money in CDs.
I'd suggest emailing support@bitfloor.com and asking them to help you do what you need. That is assuming we're talking about a substantial amount of money and not $20. Or, find a friend who isn't so cautious to receive the money and give you BTC or good old dead trees.
Did they ever manage to pay out the funds users had on the site at the time? Last I heard, they'd decided to solve the problem by freezing all those funds and gradually releasing them as they earned enough money on trading fees to actually repay people.
This makes me wonder if they had taken their user dollar accounts and bought bitcoins with them to try and make up for the shortfall, then were impossibly wiped out by the crash.
It is a little ironic consider one of the often trumpeted benefits of Bitcoin is a limited money supply and lack of a fractional reserve system. The truth of the matter is that Bitfloor was under no restrictions whatsoever on how much USD/Bitcoin it needed to have on hand in the event of something like this.
The theft from Bitfloor was roughly half the total assets (most of the BTC, none of the USD) at the time. A fractional reserve of 50% is still many times higher than what you'll find if you look in the vault of any regular bank in the US.
That might be true, but the fact is that Bitfloor wasn't required to have anything on hand. Their reserve might have been 50% in that instance, but customers are putting their faith in Bitfloor to responsibly set and maintain a reasonable reserve rate. I find it ironic that people who distrust their local banks and government to that extent will put that much faith into a Bitcoin exchange.
You can "carry" out a great much more from a theft of virtual money than you can at any brick and mortar bank. A million dollars in bitcoin wallets versus ten thousand heavy, bulky dollars.
They posted in December (https://plus.google.com/109620439233076225324/posts/YjFo5kgE...) that 1.7% of the stolen funds had been repaid out of their own revenue, and that it would continue. At the time it had only been 2-3 months since the theft, and it's been a few months since then. So people got some back (at Bitfloor's expense, unfortunately, rather than the thief's).
No, we finished coding a trading dashboard and we were building the arbitrage functionality last night.
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.
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 go long a small amount of BTC on each exchange (> your max position limit, say 3 BTC), and as long as your strategy makes more money than the carrying cost of the long position (which for any real strategy it should be paid off in days), you can arb. This is how HFTs could still market make in CAC when the uptick rule was on.
How is that not low-risk arbitrage? Good HFT strategies typically have returns of 10-20% daily on capital, there's relatively little risk holding long to allow your strategy to trade when you cover the maximum possible cost of carry in a week.
Say you have $1000 and 20 bitcoins of capital to work with, and the current price of bitcoins is $50 on both exchanges. Put $500 cash and 10 bitcoins on each of the two exchanges. Then if the price rises to $55 on exchange A but doesn't move on exchange B, you can buy 10 more bitcoins on B and sell your 10 bitcoins on A for $550, you now have a balance of $1050 at A and 20 bitcoins at B. Since you started out with 20 bitcoins and $1000, and ended up with 20 bitcoins and $1050, you made $50 profit.
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.
> With sufficient cash in both accounts it wouldn't have been an issue.
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.
Bitfloor certainly had the best exchange connectivity. They had FIX integration for gods sake!!! Really hope more exchanges with there focus on back end connectivity pop up soon.
I have a lot of FIX connectivity code just lying around now :(
This is for compat's sake, right? There's some retail trader blotter app that wants to push trades out in FIX? Why on earth would anyone build a new FIX implementation in 2013 otherwise?
Because if you speak FIX you can trade most of the electronically-tradable instruments in the world. There's no other protocol like that. The only credible effort I've seen to change this is http://blinkprotocol.org/ but that was only born a few months ago, so we can't say FIX will be obsolete anytime soon.
OUCH and ITCH as far as I am aware are the only other protocols that are anywhere near as close in adoption within the industry to FIX! Thanks for pointing out blink looks interesting.
I just yesterday wired Bitfloor over $1000, and they have yet to acknowledge my transaction. The money is gone from my bank and is currently in limbo.
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.
I totally don't care what he wanted to buy, or to chastise him for his investment decisions; I'm just curious if people are generally moving their money into Bitcoin in an attempt to move "off the grid" financially, or if this was an investment.
Yes its not the first time someone had last money on "time sensitive investment opportunities" aka gambling. And yes there are lots of people who do that with 100% of their disposable income. They also usually lose it all.
Read all the responses. I spent the money because I've been tracking bitcoin for a long time, and I felt confident that I understood the markets. Even if I completely failed as a trader, I should expect to get a fair chunk back. I put in $1200 because as a student it was everything that didn't need to go towards housing.
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.
100% fault is your own. Regular online businesses have a hard time operating merchant accounts, much less these kind of sites. Bitcoin is no safer than online poker was in the US (I had a little of my money in Full Tilt, and a lot of 'winnings', and got $0 out of it).
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.
I think it depends on what amount of your balance was your own money vs other people's money. My balance on the day the feds shutdown FT was around $500, but I had started out with money my roommate transfered to my account so $0 of it was deposited by me. He had put in $100 originally and his balance on the day FT shutdown as over $1000, and he got nothing back either.
"But don't let that get in the way of your snarky libertarianism." --Snark pot, meet snark kettle.
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."
It's somehow the government's fault that the owners of FT were paying themselves literally hundreds of millions of dollars out of player accounts?
Pokerstars was subject to the same laws, yet they had fully segregated accounts and could pay everyone 100% of their account balance.
-----------------------------------------
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.
-----------------------------------------
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?
"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."
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.
This is the part a lot of people just don't understand. There are lots of people complaining "When am I going to get my money back!". But they're missing the truth. There is no money. Full Tilt spent it, faked it, never had much of it. It's like the settlement for the Bernie Madoff scheme. You can't claim the peak balance on the fraudulent statement because that money never existed.
Fulltilt was operating against its license/charter agreement so they had to shutdown once it came to light (they were mixing deposits with operating expenses). Once shut down they couldn't afford to pay everyone back so they were subsequently sold to PokerStars once the DOJ gave their approval of the deal with the condition that Stars pays everyone back. So while the money should be returning to US players soon (FTP is actually open for business again not in the US) it has yet to happen.
That's disappointing. I really like Bitfloor, I like the approach they'd taken to their API, and I felt among the major(ish) exchanges they were refreshingly open and honest. When they were compromised earlier they seemed to make a real effort to ensure all their users were taken care of, which is a nice change from the many other exchanges who just packed up shop and never paid out.
I have a IngDirect (now CapitalOne360) checking account, which for many years was attached to Paypal and Google Checkout for receiving payments for Bingo Card Creator. One day, I got a call from their fraud/security department. Paraphrasing: "We know you're clean and well-established with us, but this use of the account with two incoming transfers a day is outside of our risk parameters, so you've got 30 days to move off it for your business use. We don't want this business."
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?"
A business checking account at Bank of America, currently. I should probably have two of them, technically, since I have two LLCs now, but I haven't gotten around to that yet.
If you don't mind me asking, I'd be curious to hear what decisions you've made on cash vs accrual accounting, pass-through vs corporate taxation, and the use of guaranteed payments vs distributions.
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 :) .
Can you elaborate on why incoming transfers from reputable companies have a certain risk attached? I simply can't think of any reason why that should be the case. Isn't the primary function of the bank to receive and store your money?
From the POV of the bank, no. Their primary function is to make money on the carry trade between money borrowed and money lended. Your deposits are borrowed funds.
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.
Money from unknown sources (aka "online services") coming in daily doesn't seem outrageous to be an outlier for fraud. Especially if the account was being used as a float of sorts (a small balance kept).
It could be as simple as "We do not have sufficient risk controls on that product to feel comfortable with you moving that velocity of money through it. Given that your use of the product is not very valuable for us, we decline to bear an unknown, uncontrolled risk to secure your business."
Probably? Someone went to a meeting one day, heard about a new fraud technique, told a junior analyst to run a SQL query and figure out which B2C accounts at this line of business had anomalously high numbers of incoming transfers, and BCC had 20x~50x the mean, so I was identified as one of a few hundred accounts to pare to reduce risk.
they might have reached the $10k daily cap. Once you start moving more than $10k in a day, the bank has different laws it has to follow which are more strict about where the money is coming from or going to.
Banks and payment processors tend to change their terms of service pretty often in relation to internet services and purchases. Stodgy yes, but very smart and on top of risk-aversion.
"We know you're clean and well-established with us, but this use of the account with two incoming transfers a day is outside of our risk parameters, so you've got 30 days to move off it for your business use. We don't want this business"
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.
Which is good and bad, if banks don't want to take business of people who have questionable transactions it becomes more difficult to run scams. Bitcoin is the wild west, it's always better if you're the one taking the money.
I think you missed the part about "we know you are clean".
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.
It was a "retail" account, so they were probably happy to look the other way as long as the volume of "business moneys" flowing through it was below a certain threshold.
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.
> P.S. If any of you think this won't happen to Mt. Gox ...
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.
111 comments
[ 2.8 ms ] story [ 194 ms ] threadI 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.
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.
[1] https://news.ycombinator.com/item?id=5262486
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.
https://bitcointalk.org/index.php?topic=105818.0
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 :(
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.
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?
Sorry to hear the bad news, guys.
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.
[1] https://bitcointalk.org/index.php?topic=41317.0