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Review of bitcoin exchange Bitfinex

Review of bitcoin exchange Bitfinex

Bitfinex is a trading platform that exchanges five pairs at current: BTC/USD, LTC/BTC, LTC/USD, DASH/BTC, and DASH/USD. It’s different from an exchange in that it allows you much more freedom of action, and leverage (for the non-Dashcoin pairs). The leverage is limited at 3.3:1, but that’s still quite a bit for such a volatile marketplace. The freedom of action comes in two ways; first, by allowing limit, market, stop, trailing stop, and fill/kill orders. Second, by allowing you to acquire (borrow) or offer (lend) liquidity on a free market contract for difference exchange. How it works is pretty simple.

Bitfinex is the largest BTC/USD exchange by volume and it is not particularly close, with a 50% lead over the next closest exchange. Orders are filled quickly, and at market rate.

The Bitfinex software is arguably the best in show. The standard trading is intuitive and user friendly, and a lending marketplace, which matches users who would like to trade on margin with users willing to lend them coin, is an industry first (and only), and widely used. The massive amount of liquidity allows a relatively low margin call of 15%, while still offering security to lenders that, barring a massive and sudden market movement, their investment is safe. There are often very attractive interest rates offered by users on the lending exchange.

Despite a relative non-transparent operational set up, Bitfinex is a top exchange. Their liquidity, trading platform, and impressive reserve strategy warrants consideration for Bitfinex as a primary coin exchange, regardless of where you are located.

Security

According to Bitfinex, 99.5% of client funds are held in cold storage, with the other .5%, apparently representing a month’s profit for Bitfinex, stored in hot wallets to ensure operational liquidity. Cold, or offline, storage is entirely separated from any online environment, making hacking a near impossibility.

So, it seems that Bitfinex has a robust cold storage system, bolstered by multisig requirements. There is no such thing as fool-proof security, but this is the closest approximation to it. The hot wallet liquidity is a fraction of the overall reserves – if there were a hot wallet security breach, bitfinex would have no trouble making good on the losses.

On the client side, two-factor authentication is offered for both account login and withdrawal requests. There is a login history to check for suspicious account activity. Bitfinex claims to have “advanced verification tools” to detect if accounts have been compromised, but have not publicized exactly what/how this works.

The server-side security seems pretty top-notch, but there could be a bit of work put in on the client-side. Though server side breaches always make headlines due to their spectacular nature, client side breaches are much more common. Expanding the multisig feature to user withdrawals would be a fantastic step, as would implementing user-based cold storage with delayed withdrawals. These are features that have been popping up around the market, and bitfinex, being the leading USD/BTC exchange, should lead on client-side security as well.

Trading

Bitfinex has a margined trading feature in which users can trade bitcoin with a 3:1 leverage, or 33%. There is a 30% margin requirement, meaning that the overall equity in a user account must equal at least 30% of the amount borrowed. A margin call is made at 15%, at which point positions will be automatically liquidated to ensure the trader does not default on the margin loan.

That margin loan is granted through a lending marketplace. Essentially, users are given the option to lend the capital required by other clients to trade on margin. In exchange, lenders are given a daily interest rate, which is set within the bitfinex trading platform. Bitfinex calls these arrangements “swaps”.

Fee structure

Executed in last 30 days (btc) Maker fees* Taker fees**
0 or more traded 0.1% 0.2%
500 or more traded 0.08% 0.2%
2,000 or more traded 0.06% 0.2%
5,000 or more traded 0.04% 0.2%
15,000 or more traded 0.02% 0.2%
25,000 or more traded 0% 0.2%

*A maker is one who adds liquidity to the bitfinex ecology.
**A taker is one who removes liquidity from the bitfinex ecology.

Final thoughts

Bitfinex offers a fantastic product. The trading platform is one of the best in the market, and the lending marketplace is a unique and valuable feature. With high liquidity and very low fees, Bitfinex is a destination site for bitcoin traders, and rightfully so.  The only downside is that bank location is not ideal from a fee perspective – unless you happen to live in China or Hong Kong – and the KYC process is particularly burdensome.