Bitfloor shuts down

by brian_cloutier • 13 years ago

109 106 13 years ago

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?

sillysaurus2• 13 years ago

What could be the reason their bank account was closed?

I wish Bitfloor had provided this info so that others could defend against the same fate.

sachingulaya5• 13 years ago

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.

julespitt3• 13 years ago

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.

eru• 13 years ago

There's both. They are often fighting the last war, though.

trotsky• 13 years ago

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.

apaprocki2• 13 years ago

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.

kintamanimatt3• 13 years ago

What's Bitfloor? I've never heard of them.

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.

jaredsohn• 13 years ago

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.

kintamanimatt3• 13 years ago

Thanks.

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.)

powertower• 13 years ago

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.

jaredstenquist• 13 years ago

You know what they say about poor decisions. They're made every day.

tiredofcareer• 13 years ago

What a tremendously helpful comment. Do you have anything to contribute, instead of just poking the poster?

dfc• 13 years ago

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.

[1] https://news.ycombinator.com/item?id=5262486

jzwinck7• 13 years ago

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.

blissofbeing• 13 years ago

I had some $ and a couple BTC in my account there, I initiated the transfer out, got my BTC right away, hopefully the ACH goes through quickly also.

hackerboos• 13 years ago

They had their servers compromised last year:

https://bitcointalk.org/index.php?topic=105818.0

makomk• 13 years ago

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.

bcoates• 13 years ago

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.

slg2• 13 years ago

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.

jzwinck7• 13 years ago

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).

sachingulaya5• 13 years ago

Well, shit. Time to trash my bitfloor/mtgox arbitrage bot.

tocomment• 13 years ago

Do you really have one? Everything I read talked me out of it when I had the idea.

girvo• 13 years ago

Do you honestly have one? How did it perform? I was considering doing something myself, I'm curious how it went.

sachingulaya5• 13 years ago

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.

foobarqux4• 13 years ago

How do you do arbitrage when you can't short and can't move funds easily and quickly?

consz3• 13 years ago

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.

csense2• 13 years ago

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.

phyalow2• 13 years ago

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 :(

tptacek4• 13 years ago

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?

MrBlue• 13 years ago

I wonder if MtGox is re-evaluating their move to the US.

astrodust• 13 years ago

Any exchange company should operate in one of the well-known havens like Gibraltar or Curaçao, not the US.

lwat• 13 years ago

Anywhere but the US

PaperclipTaken2• 13 years ago

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.

tptacek4• 13 years ago

Can I ask why you moved 100% of your disposable income to an account at any Bitcoin exchange?

waterlesscloud3• 13 years ago

Can I ask why you'd ask?

PaperclipTaken2• 13 years ago

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.

Maybe I'll open my own exchange.

krschultz3• 13 years ago

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.

foobarqux4• 13 years ago

Fulltilt players actually lost their balances?

abbott• 13 years ago

Call your bank. There is a small chance you can still cancel the transaction even if the funds have cleared your account.

rmc• 13 years ago

Talk to your bank? I'm sure they'll know how to get your money back?

mxxx• 13 years ago

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.

Sorry to hear the bad news, guys.

patio114• 13 years ago

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?"

trevorcreech• 13 years ago

Where do your BCC payments go now?

patio114• 13 years ago

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.

melvinmt• 13 years ago

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?

jacques_chester• 13 years ago

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.

jonknee2• 13 years ago

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).

lectrick• 13 years ago

Google "Sarbanes-Oxley" and weep.

patio114• 13 years ago

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."

jlgreco• 13 years ago

How could that be the sort of thing they only decide after a few years? Does it take them that long to notice that they don't like it?

patio114• 13 years ago

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.

illuminate3• 13 years ago

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.

mrb• 13 years ago

"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.

jonknee2• 13 years ago

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.

shrikant• 13 years ago

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.

wcoenen• 13 years ago

> 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.

[1] https://bitcointalk.org/index.php?topic=41317.0

Bitfloor shuts down

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