Bitfinex refuses to return $2.3 billion in recovered bitcoins
January 6, 2023
In 2016, hackers stole 119,756 Bitcoins from Hong Kong-based cryptocurrency exchange Bitfinex. CNBC created a 45-minute documentary about the hack, which you can watch here. In February 2022, the Department of Justice seized more than 94,000 bitcoins allegedly linked to the hack. At the time of the hack, it was worth $72.3 million. The value of recovered bitcoins was 3.6 billion dollars. The total value of all Bitcoin would be $4.5 billion at recovery. Bitcoin has lost over 55% of its value since then. The current value of the stolen coins is approximately $2.02 billion.
Customers are in a legal battle with Bitfinex over the rightful owner of the recovered Bitcoin. On the recovery day, Bitfinex publicly stated that Bitcoins belong to the platform. Bitfinex believes it has already compensated for the losses of hacked customers. The company did some very questionable things. The first thing Bitfinex did was aggregate all losses to 36% across all accounts on the platform, not just hacked accounts. (Think about that for a second. It’s like VISA was hacked and several accounts were taken over. Instead of fixing the affected accounts, VISA distributed the damages to all of its customers, and everyone’s statement contained charges.) Next, Bitfinex created various new digital tokens that could be exchanged for cash. The company gave account holders one BFX token for every dollar lost.
Customers had no alternative option but to accept the token. When customers sold their tokens, the company paid them $0.20 each. Bitfinex responded that it was not the company’s fault that customers did not expect the value of the token to rise to $1. The current value of BTX Bitfinex is open to paying customers a small amount of cash that is lower than the value of Bitcoin, but will not return Bitcoin. Now the courts will decide who gets what and how much. Bitfinex is based in Hong Kong. What legal leverage does an American investor have to recover his property? Who has jurisdiction? There is no leverage and Hong Kong has jurisdiction. American investors are unlikely to get their investment back.
What does this have to do with gold?
Some people will compare Bitcoin to gold. “Bitcoin is digital gold,” they say. Please excuse the terrible pun, but they should call it “Bit-Con” because that’s a lie. Comparing Bitcoin or any cryptocurrency to gold is one of the most ridiculous things one can say about two different assets. They are not considered the same asset class and have little in common. Bitcoin is a speculative asset and gold will be considered either a cash equivalent or an alternative asset depending on what type of precious metal products you buy. Second, Bitcoin is completely abstract and gold is a tangible asset that you hold in your hands.
I’ll start by stating my bias. I am not a fan of cryptocurrencies. To me, cryptocurrencies represent a finite supply of nothing. Also, there is no objective way that I know of to give a fair value to cryptocurrency. With stocks, there are various models for estimating future earnings to gauge whether a stock is undervalued or overvalued. Financial indicators and economic conditions can help determine whether to buy, hold or sell gold. Real estate can be valued by comparing it to similar properties and actions within the local economy. Multiple ratios can provide complementary information to comparable sales and real estate value.
However, as far as I know, cryptocurrencies do not have a valuation method like other assets. However, an investment can be valued at a current price and an expected future value. If there is no way to predict the value of a cryptocurrency other than hype, it is not an investment. This is a speculative gamble. Gambling is not my style of investing, so I don’t do crypto. If I ever decide to gamble my money away, I’ll go to Vegas. At least in Vegas they give you free food to console you for losing all your money. I want to have as little investment risk and diversification across asset classes as possible.
Cryptocurrencies pose a threat to centralized power if transactions can occur outside the eyes of tax authorities. When the Fed issues a CBDC, cryptocurrencies will be illegal. China is closer to issuing a digital currency and has already criminalized cryptocurrencies. India is also closer to issuing a CBDC than the US India’s central bank is calling for the criminalization of cryptocurrencies, prompting the G20 to adopt a similar policy. Unfortunately, the US has followed China’s lead in several economic and political policies over the past few years. US policy will eventually follow China’s cryptocurrency policy. The long-term outlook for private cryptocurrencies is dismal. Still, none of these arguments against cryptocurrencies translate into the most compelling arguments for precious metals.
Instead, stories like this hack offer a resounding reminder of what a wise investor once said. “If you can’t keep it, you don’t own it.” Bitcoins have recovered and customers are still struggling to get their fortunes back six years later. He gave the power to be separated from his wealth, and the other party did not want to give his wealth back. Having wealth under your control is the best way to avoid these problems. Precious metals provide a sense of comfort and control when you store them at home.
Today is the day to regain control of your financial situation.
Call the US Gold Bureau. (800) 775-3504