The price gap between Bitfinex and other major exchanges is like a chasm. Is this an ominous sign of bankruptcy?

Over the past week, many traders have been discussing the significant price discrepancies between exchanges. Most notably, the rate difference between Bitfinex and most other exchanges is quite large. At press time, the difference between Bitfinex and other exchanges is approximately $110. This spread has continued to increase over the past five days since the exchange suspended fiat withdrawals. Many skeptics see this price discrepancy and the suspension of withdrawals as a reason to worry that the community may be facing a nightmare similar to that of Mt Gox.

(BTC/USD hits as high as $1,359 on Bitfinex 4/23/17)

Spreads on Mt Gox in 2013 Spreads on Mt Gox began to change at the beginning of the bull run in 2013, the year the cryptocurrency hit its all-time high. The largest price divergence began around August 2013, at the now-defunct Mt Gox. During this time, warnings of bankruptcy had begun to gain the community’s attention, and many viewed the price divergence as a bad omen.

(Mt Gox price spread in 2013.)

Economist and author Konard S. Graf wrote about the incident at the time, titled "A banking risk premium: Mt. Gox XBT/USD spread over Bitstamp." When the spread occurred, Graf noticed that Mt Gox users were having trouble withdrawing dollars, especially in the U.S. "Based on user reports, Mt Gox's ability to process fiat deposits and withdrawals, especially for U.S. dollars, has become increasingly unreliable in the eyes of market participants, compared to Bitstamp's reliability and ability to process deposits and withdrawals in a timely manner," Graf explained on August 21, 2013.

“So the most reliable way to bring down Mt Gox and profit from it was thought to be to buy Bitcoin and cash it out, which was a simple, quick and free process. Because of the perceived risk involved, and the cost of cashing out, this incentivized a premium for Bitcoin on exchanges, and a large discount to the U.S. dollar.”

Two trading bots named Willy and Markus are currently experiencing fiat currency withdrawal issues on exchanges, which is one of the factors that led to the price spike and widening spreads in April this year. A key difference between the current situation and the situation in 2013 is that Mt Gox used a trading bot called "Willy". The infamous bot was discovered in September, but it really came to everyone's attention in December. In December of that year, the price of Bitcoin hit an all-time high on global exchanges, and the price difference between Mt Gox and other exchanges was very obvious.

$1242 (Mt Gox ATH) $1163 (Bitstamp ATH) $1175 (Bitfinex ATH)

In a leaked "Willy Report," several Bitcoin advocates noticed peculiar activity on Mt Gox. They later discovered that two trading bots, named Willy and Markus, were actively pushing the premium on Mt Gox regularly since September 27, 2013. According to the researchers' report, Willy's account continued to trade on Mt Gox until January 2014.

“Based on my personal observations, Willy has been active until January 26, buying 10 to 20 bitcoins every 5 to 10 minutes, averaging about 100 BTC per hour.”

There is no evidence that Bitfinex is being exploited in the same way as Mt Gox. In fact, the exchange has vehemently denied bankruptcy, explaining that other exchange platforms are dealing with the same banking difficulties. “We would like to apologize for the ongoing inconvenience and assure our customers that we are doing everything we can to get everything back on track,” Bitfinex explained to its customers. Interesting Tether and Poloniex USDT Market Activity

Another interesting factor is the price difference between the cryptocurrency exchange Poloniex and other exchanges. At press time, the price of each Bitcoin on the Poloniex trading platform is 1331 USDT, but most people don’t realize that USDT stands for the digital currency Tether. Poloniex does not use fiat currency, but Tether, a digital asset that is 1:1 with the U.S. dollar. Since the withdrawal problems on Bitfinex, BTC-e and other exchanges, the price of Tether has dropped below $1.

Right now, one Tether is trading at 0.91 cents, which is why the price per BTC on Poloniex looks expensive, but it isn’t. Entrepreneur Jimi Smoot detailed the situation in a recent blog post, and he believes that Tether’s own fiat wire capabilities have also been suspended. “However, as of this writing, both Tether and Bitfinex are having issues sending and receiving U.S. dollar wire transfers,” Smoot explained. “You wouldn’t know this by looking at Tether’s Twitter, website, etc., but guess who knows? The market knows. Regardless, the market seems to think Tether is slightly down from the past. I’m curious to see how much further the price will drop now that wire services are suspended.”

(Poloniex uses Tether as the conversion unit, BTC/USDT market situation. 0.91x1331Tether=1211USD.)

Arbitrage opportunity or risky business?

Regardless, the price difference is not that big, but some people think there is an arbitrage opportunity. Arbitrage is buying from one exchange at a lower price and selling it on the exchange at a higher price to make a profit. There are many posts on social media discussing arbitrage opportunities on Bitfinex, giving a step-by-step walkthrough of arbitrage opportunities. However, some people think that profiting from an exchange that is experiencing withdrawal difficulties may be risky, as skeptics say that other types of fiat currency suspensions may follow. Just as people were worried about the price difference in 2013, they should be worried today, after all, everyone believes that price differences of up to $100 are not usually seen, so they should be suspected.