{"id":875,"date":"2016-08-13T13:48:48","date_gmt":"2016-08-13T17:48:48","guid":{"rendered":"https:\/\/howigrowmywealth.com\/?p=875"},"modified":"2016-09-20T18:13:18","modified_gmt":"2016-09-20T22:13:18","slug":"bitfinex-buying-bfx-tokens","status":"publish","type":"post","link":"https:\/\/howigrowmywealth.com\/bitfinex-buying-bfx-tokens\/","title":{"rendered":"Is Bitfinex Buying BFX Tokens?"},"content":{"rendered":"
On August 2 Coindesk reported a hacker stole some $60 million worth of Bitcoin from the Bitfinex exchange. Altcoins such as ETH, ETC, LTC on Bitfinex were not stolen by the hacker.<\/p>\n
Source: http:\/\/www.coindesk.com\/bitfinex-bitcoin-hack-know-dont-know\/<\/em><\/p>\n Bitfinex decided to “socialize” the losses in what they claim would be similar to a bankruptcy liquidation.<\/p>\n All account holders on Bitfinex at the time of the hack received the newly created BFX tokens equal to roughly 36% of their pre-hack balance in place of the losses.<\/p>\n The tokens were issued at a one token to dollar parity. For crypto currency balances the value was based on prices announced by Bitfinex.<\/p>\n Source: http:\/\/blog.bitfinex.com\/uncategorized\/bitfinex-update\/<\/em><\/p>\n Interestingly before trading was live the ticker already priced BFX at .80 per token–a 20% discount.<\/p>\n As of writing tokens are trading down around $.36.<\/p>\n But this low price creates an opportunity for the exchange Bitfinex. They could buy their own tokens back at a huge discount and then forgive their own debt.<\/p>\n Let’s say you borrow $100 from your friend Robert. You give Robert a piece of paper promising to pay him back (an “IOU”).<\/p>\n You fall on hard times and Robert is convinced you won’t make good on your promise to pay him back so he decides to cut his losses.<\/p>\n He sells the IOU to Susan for $25. Robert figures $25 is better than $0.<\/p>\n Susan holds the IOU for a little while but then decides she wants the money. She offers to sell the IOU for $30.<\/p>\n You could buy your own IOU back for just $30 and then forgive the debt to yourself.<\/p>\n In other words you’ve just gotten $100 for $30.<\/p>\n See where I’m going with this?<\/p>\n While no one voluntarily loaned money to Bitfinex in exchange for the BFX tokens my hypothetical example above is very similar to the position Bitfinex finds itself.<\/p>\n Bitfinex public relations man Zane Tackett claims they do not buy their own debt on the exchange.<\/p>\n <\/p>\n Source: https:\/\/www.reddit.com\/r\/BitcoinMarkets\/comments\/4xcrup\/bfxcoin_discussion\/d6ei72p?context=3<\/em><\/p>\n I have no evidence that Bitfinex is buying their own tokens. But there is a strong<\/strong> incentive for them to do so.<\/p>\n From my perspective the tokens are a huge disappointment.<\/p>\n The tokens pay no interest, no dividend, and there is no timeline on when the tokens will be repaid or even if<\/strong> they will ever be repaid.<\/p>\n “However, no property held back will be used to pay dividends to current shareholders unless<\/strong> and until our customers are repaid.” Emphasis Added.<\/p><\/blockquote>\n Source: http:\/\/blog.bitfinex.com\/uncategorized\/interim-announcement\/<\/em><\/p>\n The best people like me who were assigned the token can hope for is Bitfinex will pay the face value back in full as soon as possible.<\/p>\n I don’t see how the BFX tokens will ever be worth $1 or more via trade. If Bitfinex releases a legally binding repayment plan I could see the token value approach $1. For example, if Bitfinex announced BFX tokens would be repaid on 8\/14\/2016, they might trade up to $.99 per token leading up to the payout for people to make .01 per token in one day.<\/p>\n Why is that the case? Because a rational investor will not voluntarily buy an instrument today for the promise of the same (or less) amount in the future. A rational investor wants to be compensated for the time value of money.<\/p>\n Plus there is a lot of risk that the amount will never be repaid. The BFX tokens are reward-free risk for anyone assigned<\/em> the token.<\/p>\n It beats just taking the full 36% loss, but falls far short of my hopes for interest, equity, tradability (for US clients) and a set maturity.<\/p>\n Presumably the tokens could be held to “maturity” at which point Bitfinex would buy them back at face value but if maturity is 1 or 100 years from now, tomorrow or never, no one knows.<\/p>\n That could be a long time with no interest which is a big fat loss both in terms of lost opportunities to invest the money elsewhere and purchasing power lost due to price inflation.<\/p>\n As mentioned earlier in this article, if Bitfinex were to buy back their own debt at current token prices they would be saving 64% on their outstanding debt.<\/p>\n Other winners could<\/em> be risk loving speculators. With the token trading at just $.36 speculators who believe that Bitfinex will buy the tokens at face value could buy BFX tokens at a huge discount.<\/p>\n For example if I could buy BFX tokens for $.36 each and I knew I’d get a dollar for them in a year it’d be a no brainer investment.Debt Buyback: An Example<\/h2>\n
BFX Token Losers<\/h2>\n
BFX Token Winners<\/h2>\n
\n