A Brief Note onBTC-e
BTC-e is one of the oldest still-operating (though this is in doubt now) cryptocurrency exchanges. Back when people were trading on MtGox, Bitcoinica, etc., BTC-e was churning along.
One feature of BTC-e was that anyone could just make an account, unverified, and deposit any amount of bitcoin. They could then sell down the spot market for USD, RUB, or other fiat, and hold deposits in that form. This meant that there was no KYC/AML procedures in place to bother privacy-conscious individuals who wanted to get out of their crypto and into fiat.
Well, now that party is over. Alex Vinnik and BTC-e have received a $110 million civil penalty from FinCEN, as well as criminal charges from the DoJ for money laundering.
BTC-e the website is currently down and they have announced intentions of returning operations within 5–10 days. Although this may be optimistic given that the main admin is now in EU (soon to be US) custody.
As traders, we knew something was up at BTC-e. Thankfully since 2013, much better exchanges with superior platforms have arisen and, as a result, most traders do not currently use BTC-e. This has left most of its users to be those who are of the criminal persuasion trying to get rid of crypto for fiat, as well as risk-willing individuals who want to take advantage of discounted crypto and arbitrage the “cheap” BTC-e prices with “expensive” (normal) prices of other cryptocurrency exchanges.
We used to call BTC-e “BTC-Putin”, it was a running joke that the Russian Mafia was running BTC-e. Their support has notoriously been unreliable, but they always have secured user funds properly (ETC fiasco aside…) and been reliable in terms of security (no reported hack in their 6 year existence).
Furthermore, the persistent discount that BTC-e prices have been in for the past 3–4 years has always been a strong indicator that the sell pressure on the exchange is much more than just “cost of depositing fiat”. There was clearly large efforts to wash cryptocurrency by selling into the fiat-spot orderbooks. The % discount BTC-e often traded at for its BTC, LTC, and other crypto pairs was far in excess of the 1–2% fees for getting fiat into BTC-e to take advantage of the gap. There was a special, deeper discount, the moneylaundering discount.
So it comes as no surprise to veteran traders that BTC-e has now been busted as a massive criminal enterprise. Most of us were no longer active on there due to poor platform and strange market behavior. It is now revealed that it has been less a cryptocurrency exchange, more a laundromat for criminals using crypto to secure their funds through complex banking networks.
If we assume that BTC-e is now out of business: what happens to customer funds? Will they just relocate and continue business? Will the US authorities seize the funds and force users through a painful recovery process?
One thing that I can say for sure: the crypto market space has evolved well beyond BTC-e type exchanges. BTC-e was a “first generation” crypto exchange, along with Bitcoinica and Mt GOX. These are exchanges that were not thrown together by the best professionals, had security issues, or were involved in shady transactions in general.
Had this BTC-e bust news hit back in 2013 or 2014, it would have had devastating consequences for cryptocurrency prices. However, in 2017 we have moved far beyond this. There are now not only multiple spot exchanges with margin trading capabilities, but a booming crypto derivatives space. We are now in Second Generation of financial firms in crypto: professional, well-designed products being reliably offered under regulatory supervision. It is an environment where shops like BTC-e simply do not have as much to offer. Their only competitive advantage is being shady, which leads to only shady people using them, which then leads to major issues as we see in the past couple days.
