Confusion and chaos have been prevalent in the wake of the Bitcoin Cash fork, and it feels like some trickery is afoot. The Bitfinex exchange has taken some very strange steps over the past few hours. A lot of its users did not receive the correct distribution of BCH tokens. In fact, the exchange issued BCH at a coefficient of only 0.8539. Something does not add up here.
Bitfinex and Bitcoin Cash Are Not a Good Mix
Cryptocurrency exchanges have found themselves in a very strange position when it comes to “chain splits.” Every time such an event occurs — which is not all that often, thankfully — there is some sort of tricky, shenanigans, or weird decision that upsets people. The split between Bitcoin and Bitcoin Cash is no different, and it appears there are a lot of things going wrong for the Bitfinex exchange. The coefficient used by the company to issue BCH tokens to its users has raised a lot of questions.
Under normal circumstances, an exchange would award 1 BCH token to users that own 1 Bitcoin. Bitfinex customers that hold 50 Bitcoin should have received 50 Bitcoin Cash accordingly. That was not exactly the case for all users, and it seems there is a bit of a discrepancy. First of all, the company held 101,798 BCH to distribute despite having 131,237 BTC in settled wallet balances. This represented -29.438 BTC in unsettled margin positions. How that is even possible remains unclear. Disabling margin trading prior to and during the fork would have been the better option.
It seems that Bitfinex wanted to punish the people who still had an open margin position at the time of the hard fork. Any lenders locked into loans would be protected, and Bitfinex did not want to distribute negative balances to short positions. That made a lot of sense to a certain degree. Any Bitfinex user who held a margin long position during the fork has not received his or her proper value of BCH. Though controversial, that decision made sense somewhat.
According to Bitfinex, multiple accounts engaged in large-scale manipulation in order to obtain BCH tokens at the expense of lenders and exchange longs on the platform. This method would have sunk the BCH distribution coefficient. This degree of manipulation was, according to a company blog post, in violation of Bitfinex’s ToS. Anyone who tried to take advantage in that way has been “punished” accordingly.
The end result is as follows: hedged Bitcoin account balances in exchange of the balance that existed on July 27th have not received any Bitcoin Cash tokens. It is unclear what will happen to these non-issued tokens since it is possible they are still in the custody of Bitfinex. The company plans to post another update a few days from now, which will hopefully include an explanation of what it will be doing with these tokens. For now, there is no plan to create a BCH trading market.
As all of this shows, Bitfinex did not issue Bitcoin Cash tokens as the community expected them to. While it is understandable that margin traders brought this upon themselves, it is up to exchanges to prevent this from happening in the first place. There will be plenty of backlash over this decision, especially until we know how the company will handle the remaining BCH tokens in its custody.