Following a 20% decline in the price of bitcoin this week, uncertainty continues to cast a shadow on broader market activity.
Bitcoin prices fell to a low of $480 on Tuesday amidst news Hong Kong exchange Bitfinex had lost nearly 120,000 BTC in a high-profile hack. But while the price has recovered to $580 at press time, the $68m loss and the subsequent shutdown of the exchange has sent shockwaves throughout the industry.
Days after Bitfinex first halted trading, much about the path forward for the company remains unknown, including whether it will be able to reimburse investors who lost funds in the incident.
All of this is creating a difficult market for traders, according to Petar Zivkovski, director of operations for bitcoin trading platform Whaleclub.
Zivkovski told CoinDesk:
“Rumors are flying about who and how much has been stolen and what the future of Bitfinex holds. Will it continue operations? Will the exchange cover customer funds? Will it go bankrupt like Mt Gox?”
Zivkovski’s statements paint a picture of the state of mind of market observers, many of whom are concerned about whether Bitfinex, a firm that was previously vocal about the strength of its security measures, will continue to operate at all.
Still, others argue the exchange has done its part to stem the damage.
Zane Tacket, the exchange’s director of community, for example, has been active in providing updates through social media, a development market observer Jacob Eliosoff believes has helped calm concern somewhat.
Mt Gox fears
Still, market observers are beginning to weigh the potential impact of the ultimate closure of the exchange and what it could mean for the ecosystem.
Unsurprisingly, many market observers were quick to draw comparisons to now-defunct Japan-based exchange Mt Gox, which collapsed in 2014 after it was robbed of 744,408 BTC (worth $350m at the time).
“I’ll be surprised if anything other than Bitfinex is a major price mover for the next few days,” Eliosoff said. “This is a major event, the worst since Mt Gox. And unlike Mt. Gox, Bitfinex had a pretty good reputation.”
Olaf Carlson-Wee, founder of digital asset hedge fund Polychain Capital, also spoke to the key role that Bitfinex has played in bitcoin markets, emphasizing its departure would likely lead to diminished volumes.
He noted that beyond a potential reduction in transaction activity, there is concern about how effectively other market operators can perform their roles.
Carlson-Wee was certainly not the only one who spoke to bitcoin’s potential headwinds going forward, as Eliosoff stated that he expects the Bitfinex hack “will be a damper on the price for months”.
Zivkovkski went a step further, telling CoinDesk that “a Mt. Gox style bankruptcy” could put a huge amount of sell pressure on price.
Still, he emphasized his expectation that the situation’s uncertainty will resolve soon as the Bitfinex team clarifies “where it stands”. Should Bitfinex succeed in answering big questions, Zivkovkski said the price could again stabilize.
Long-term bulls remain
Others sought to stress that, given the potential for the bitcoin market to grow, the hack is unlikely to have an impact on the value of bitcoin long term.
While the Bitfinex hack has certainly helped place downward pressure on current bitcoin prices, market observer Joe Lee noted the silver lining.
He told CoinDesk:
“The price recovery following Bitfinex’s bad news reflects a strong level of interest in holding bitcoin for the purpose of long-term investment.”
Lee, founder of leveraged derivatives trading platform Magnr, stated that the recent recovery in bitcoin prices reflects awareness of the strength of bitcoin as a technology, and that the platform “remains robust” despite the ongoing issues at Bitfinex.
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