Trading Bitcoin on Bitfinex (Review)

Bitfinex (BFX) is a major Hong Kong-based cryptocurrency exchange, specialised for trading. Bitfinex facilitates the US Dollar-based trading of Bitcoin and 7 other altcoins, including Monero and Ethereum. Bitfinex is the leading exchange for USD-denominated Bitcoin trading.

Bitfinex allows leveraged trading of up to 3.3 times and a related margin funding market for lenders. Bitfinex also offers their own unique speculative tokens, which may be used to bet on the potential Bitcoin Core / Bitcoin Unlimited network fork.

Bitfinex Volume

Fact: Bitfinex (BFX) currently has the most volume of any Bitcoin exchange.

This graph of monthly exchange volume for the first quarter 2017, courtesy of Bitcoinity, illustrates Bitfinex’s dominance:

Bitfinex has been the largest exchange by volume ever since Chinese Bitcoin exchanges were forced (by the People’s Bank of China) to charge trading fees. This ruling effectively ended the ability of Chinese exchanges to report artificially inflated trading volumes, a practice known as wash trading.

Chinese Bitcoin trading volumes collapsed following the PBOC ruling.

Note: Bitfinex’s nearest rival for volume,Japan’s Bitflyer exchange, charges zero trading fees. As Bitflyer’s real volume is thus likely far lower than reported, Bitfinex’s market share is even larger than it appears.

So Bitfinex has the most volume… Why does that even matter?

A few reasons:

1) Most volume implies the tightest spread. In other words, the difference between the buying and selling prices is likely lowest on Bitfinex. The wider the spread, the further price has to travel in a trader’s favour to put them into profitable territory.

2) Most volume also implies best liquidity. In other words; you could trade a large number of bitcoins (BTC) on Bitfinex without pushing the price away from you.

Note: the above points are somewhat reflexive; Bitfinex is more likely to attract traders as it has the most traders.

However, as traders are entirely free to migrate to other exchanges, Bitfinex must be providing good service in order to maintain its popularity. This is especially true in light of the events of 2016, which severely rattled confidence in Bitfinex …

A final, important word on volume: even if you don’t intend to trade on Bitfinex, monitor the BTCUSD price there as it will often “lead” prices across the other exchanges.

The Bitfinex Hack

In August of 2016, about 120,000 bitcoins (worth roughly $72 million USD at the time) were stolen from Bitfinex. While nowhere as large as the infamous Mt. Gox hack, the event still greatly impacted Bitcoin price, briefly pushing it down almost 25% as the market digested the news.

How did Bitfinex handle the hack?

Well enough to stay in business, at least! The company went on to implement a novel, if rather controversial, two-part reponse:

1) Bitfinex chose to socialise the losses; despite only certain user accounts being affected, the loss was spread across all user accounts. It was indicated to these users that they’d eventually be fully compensated.

2) In the meantime, Bitfinex issued custom BFX tokens to all affected users, proportional to their losses. Users have the option of either waiting for Bitfinex to repurchase these tokens at their original $1 face value, converting them to equity in the company or trading them through the exchange.

Bitfinex began repaying customer losses in 2017. As of March 6th 2017, 5% of all outstanding BFX tokens have been redeemed.

Update: on the 3rd of April 2017, Bitfinex announced that they would repay 100% of BFX tokens “shortly.”

Exchange security

It’s hard to determine the true security level of any centralised exchange; their code and practices are kept secret for security reasons and so can’t be assessed. It can be hoped – but not established for an absolute certainty – that Bitfinex have learnt their lesson and made security their utmost priority. That the company diverted certain profits into paying back their customers may be taken as a sign of good faith, although more than 95% of claims are as-yet unsettled.

Ultimately, it is for the individual trader to select a centralised exchange whose apparent security will give them peace of mind. If you’re not a trader but only wish to buy bitcoins, consider using a decentralised exchange instead.

Here are some further tips for safe trading:

  • Perform your own due diligence before making any final decision on your primary trading venue; pay particular attention to audits, insurance, and security practices.
  • If practical, consider diversifying your trading across multiple exchanges.
  • Finally, in times of uncertainty, never trust the opinions of smooth talkers such as Roger Ver, who famously ver-ified Mt. Gox to be fine shortly before it collapsed.

Bitfinex Services

Bitfinex offers numerous features:

  • Margin lending of USD or cryptocurrency to traders employing leverage. This enables one to earn interest on any funds left on Bitfinex. The site BFXdata offers useful tools for plotting rates of interest over time and calculating potential returns. It’s for the individual to decide whether the potential returns are worth the risk of another hack. Be sure to compare the offered rates to other exchanges which offer this service, such as Poloniex.
  • As well as their regular exchange, Bitfinex also conducts or arranges large, private trades via their Over The Counter (OTC) service. This can be helpful if you wish to trade a market-moving amount “under the radar” of other traders.
  • A mobile app for trading, receiving important updates and monitoring your trades. Due to the inherently less secure nature of mobile platforms, we strongly recommend that any trading of substantial value be performed only through a secured desktop or laptop.
  • Bitfinex offers a wide variety of order types, affording flexibility to professional traders. They also provide an API with features suitable for automatred trading.

  • Bitfinex’s trading interface, with charts based on the popular Trading View charting site, is detailed, responsive and customisable.

  • Bitfinex offers various security features for securing your account, such as Multi Factor Authentication.
  • Bitfinex offers trading in the following wide range of (crypto)currency pairs:

Bitfinex Fees

Bitfinex fees are very low, as is standard for large, trading-focused exchanges. At low volumes, traders who take the offers of others (“takers”) will pay 0.2% in fees. Those who instead place trades in the order book will pay only 0.1%. Maker fees are waived entirely for accounts which have traded over $7.5m, whereas taker fees may fall as low as 0.1% with sufficient volume.

Bitfinex Funding and Withdrawal Options

The only way to deposit fiat Dollars is via SWIFT (aka bank wire transfer). As this is a slow and expensive option which also requires identity verification, those seeking to buy bitcoins will almost always be better served by purchasing them from a local exchange or trader.

Bitfinex charges a 0.1% fee on all bank wire deposits, with a minimum fee of $20. This is additional to your banking costs, which may be very steep. This is especially true if sending a currency other than US Dollars, which must be converted.

Tip:

To use Bitfinex for its intended purpose of trading, it makes far more sense to acquire Bitcoin or some other cryptocurrency locally and then transfer such funds relatively quickly and cheaply to Bitfinex. Transferring cryptocurrency to Bitfinex also requires no identity verification.

Deposited cryptocurrency may then be exchanged for US Dollars or some other crypto. If correctly timed – ideally when your crypto of choice is at a price peak – this is by far the best funding method.

Note:

The Tether cryptocurrency (TUSD) supported by Bitfinex is pegged to the value of the US Dollar. If depositing via Tether, one obviates the need for any market timing: each TUSD deposited to Bitfinex and sold will equal 1 USD in your BFX trading account. Of course, if your local currency is something other than USD, this only simplifies rather than eliminates your fiat currency risk.

US Dollar withdrawals from Bitfinex are also conducted exclusively via bank wire. Again, this option is expensive and slow. It may take up to 7 business days, unless one pays the extra 1% ($20 minimum) fee for an “express” one business day withdrawal. Again, you would probably be better served to withdraw via cryptocurrency and sell it locally.

Warning: Bitcoin withdrawals from Bitfinex may take some time. Although bitcoins may be released within minutes, a wait time of 1 or 2 hours is more common. Bitfinex promises a maximum wait of 12 hours.

How to Trade on Bitfinex

The best way to familiarise yourself with Bitfinex is to create an account (only an email address is required) and then click the “Support” tab at the top right of the interface. Click the “Tours & Guides” option and follow the interactive guides.

Note: hovering over named aspects of the interface will produce an explanatory tooltip.

If anything remains unclear, research the topic in the “Help Centre” or contact their support staff.

Warning: As the interface and the exchange’s features are failry complex, we highly recommend that new traders take the time to become fully acquainted with all relevant aspects before depositing any funds or engaging in trading.

Rating: 4