Notes 5/9: Bittrex Buries the Baby, Bitcoin Price Falls

Crypto exchange Bittrex has decided to “bury the baby” after being charged by the Securities and Exchange Commission (SEC) last month for breaking securities rules even as it minted $1.3 billion in profit.

The Seattle exchange filed for bankruptcy yesterday in Delaware. It listed 100,000 creditors and liabilities of between $500 million to $1 billion. The bankruptcy filing will not affect the exchange’s global operations.

Less Innovation, More Scam

It is only a matter of time before crypto’s proponents moan Bittrex’s departure as another instance of crypto innovation migrating from the US.

But Bittrex was less innovation, more scam. For most of its short existence in the United States, the exchange lurched from one regulatory roadblock to another. Like most crypto entities, it has a colorful past, one that is replete with instances of malpractices and testing the limits of securities laws to dupe customers.

In addition to the latest charges by the SEC this year, Bittrex was the subject of a class action lawsuit in 2020. The suit charged the exchange, along with stablecoin Tether, with manipulating bitcoin price through wash trading at its venue.

The New York Department of Financial Services (NYDFS) also rejected its application for a BitLicense in 2019 because it fudged customer identity data. In addition, the agency said Bittrex’s attempts to pass off a “wholly inadequate limited capacity manual system” for a transaction monitoring system was an example of “bad faith or extremely bad judgement.”

Then there are its terms of service for its US users. The exchange’s “discretion” is paramount in its offerings to users. That discretion enables the exchange to “suspend or cease the transfer, storage, or trading of any token at any time”. It also enables them to “suspend or reject transaction requests.” And so on. This means that the exchange’s users and their trading decisions will always be at the mercy of its arbitrary discretionary powers.   

Existing Outside the United States

After last month’s dust up with regulators, Bittrex chief executive officer Oliver Linch told an interviewer that their “entire existence” is premised on being based outside the United States. In that sense, the move is not a dramatic denouement.

Bittrex is currently ranked 33rd in trading volumes among cryptocurrency exchanges and has a daily trading volume of roughly $7.26 million. It has 591 markets of mostly worthless tokens trading against each other and a 0.02% market share of the overall crypto markets.

Bitcoin Price Continues Falling

Bitcoin price continues to drift downwards. The cryptocurrency is changing hands for $27,565, as of this writing, down almost 1.5% from its price 24 hours ago. On a weekly note, it is down by 2%.

Binance’s decision to pause withdrawals for some time slashed the number of transactions waiting for confirmation in the cryptocurrency’s memory pool. However, they are back to highs as of this writing.     

Miner Profits

The decline in bitcoin price has not affected miner revenue, however. They continue to rake in profits from the recent surge in transactions on its blockchain. That surge instigated a corresponding increase in transaction fees on its blockchain.

The average bitcoin transaction fee yesterday was $31.145 from $2.46 at the end of last month. As with most cryptocurrency transactions, the spoils from manipulating bitcoin price are distributed amongst a few select stakeholders.  

Typically, bitcoin hash rate, or the total amount of computing power deployed to mine bitcoin, increases after miners turn on their machines to produce more of the cryptocurrency and profit from its price. Since the end of last week, however, bitcoin hash rate is declining, meaning miners are moving out of its network after booking long-delayed profits for their machines.

But their defection is balanced by a decline in the cryptocurrency’s network difficulty during the same period. The network difficulty is a measure of the algorithmic difficulty in mining and a decline means that it is now easier to mine the cryptocurrency than it was earlier. A reversal of this trend will tip bitcoin price lower.  

Block Size Increases

Away from bitcoin price action, however, there is good news. The average block size for bitcoin jumped from 1.01 MB on 24 January to 2.52 MB on 11 Feb. On Sunday, it was at 1.703 MB. Bitcoin had scaling problems earlier because its block size was restricted to 1 MB. An increase in block sizes means that its network will be able to handle more complex transactions, ones that involve more calculations and encode more information.

The number of transactions waiting for confirmation in bitcoin’s memory pool is running high currently. It peaked in May 2017 and clogged the cryptocurrency’s network. The question is whether it can withstand a similar load after an increase in block size and adoption of the Lightning Network.

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