
Bitfloor shuts down - brian_cloutier
https://bitfloor.com/
======
patio11
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?"

~~~
melvinmt
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?

~~~
patio11
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."

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

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

~~~
gfodor
Actually if his comment causes the poster to reflect on the fact that perhaps
this was a mistake in the first place and a lesson to be learned, the poster
and anyone reading this thread might be better off.

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dangrossman
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?

~~~
apaprocki
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.

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kintamanimatt
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
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.

~~~
kintamanimatt
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.)

~~~
jzwinck
I think they said why: one of their key bank accounts is being closed against
their wishes. It's not easy to get an account like that opened, and when it's
closed the money has to go somewhere. In this case, back to the clients.

~~~
kintamanimatt
Bank accounts can be closed for all kinds of reasons. They don't really say
what happened or _why_ their account is being closed, or why they aren't being
tough cookies and working around this blip, if possible, etc.

In essence, their post is about as content-free as imaginable, which is a
shame because it was a good opportunity to educate others.

~~~
jzwinck
They're probably too busy trying to return all the client funds to write a
beautiful blog post about what happened (or rather, is happening right now).
Bitfloor is active on Twitter--it might be better to tweet at them on the
weekend to say you're interested in a follow-up post (mortem).

------
PaperclipTaken
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.

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

~~~
waterlesscloud
Can I ask why you'd ask?

~~~
tptacek
Because that's a surprising decision to make, whether or not it's a good one,
and I'm interested in why someone would decide that.

~~~
mcantelon
It's probably not the first time someone has put all their disposable income
into what they think is a time-sensitive investment opportunity.

~~~
mritun
Yes its not the first time someone had last money on "time sensitive
investment opportunities" aka gambling. And yes there are lots of people who
do that with 100% of their disposable income. They also usually lose it all.

~~~
mcantelon
>gambling

What makes it gambling rather than an investment?

------
hackerboos
They had their servers compromised last year:

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

~~~
makomk
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.

~~~
slg
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.

~~~
jzwinck
The theft from Bitfloor was roughly half the total assets (most of the BTC,
none of the USD) at the time. A fractional reserve of 50% is still many times
higher than what you'll find if you look in the vault of any regular bank in
the US.

~~~
slg
That might be true, but the fact is that Bitfloor wasn't required to have
anything on hand. Their reserve might have been 50% in that instance, but
customers are putting their faith in Bitfloor to responsibly set and maintain
a reasonable reserve rate. I find it ironic that people who distrust their
local banks and government to that extent will put that much faith into a
Bitcoin exchange.

~~~
khuey
On the other hand if bitfloor had no reserves you couldn't steal from them.

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

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

~~~
csense
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.

~~~
sachingulaya
Spot on. Moving BTC between exchanges is a 30minute process. With sufficient
cash in both accounts it wouldn't have been an issue.

~~~
csense
> With sufficient cash in both accounts it wouldn't have been an issue.

Depends on your definition of "sufficient." If you're no longer small compared
to the market, i.e. you have enough money that a small fraction of your
capital can completely fill the arbitrage-able offers and move prices back
into line, in that situation moving money between exchanges is no longer an
issue.

But you don't need to be that big to merely make a risk-free profit when the
right kind of pricing anomaly appears. And if there are enough small actors
doing this, their combined efforts can stamp out pricing anomalies just as
effectively as a single large actor.

------
blissofbeing
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.

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

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

~~~
lwat
Anywhere but the US

~~~
epynonymous
or china for that matter

------
mxxx
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.

