Bitcoin Derivatives Platform BTC.sx Resumes Trading After Mt Gox-Induced Freeze

Danny Bradbury
Mar 12, 2014 at 22:36 UTC
Updated Oct 31, 2014 at 17:11 UTC

Derivatives trading site BTC.sx has resumed trading after a few weeks of downtime induced by the Mt. Gox collapse. The company has signed Bitstamp as its new exchange partner, said BTC.sx CEO Joseph Lee.

BTC.sx suspended its operations until further notice on February 25, after Mt. Gox imploded. At the time, Lee told CoinDesk that he had no prior warning from the exchange, even as a business partner. BTC.sx went to Gox to trade bitcoins on behalf of its customers, who were using Lee’s site to trade bitcoin-based derivatives.

The company was up to around $40m in brokered trades by the time Mt Gox collapsed.

“Counterparty risk is something that we spotted early in the business. It’s always been in our plan to partner with other exchanges,” said Lee, adding that he had originally planned to bring other exchanges on in April. The firm switched on Bitstamp integration yesterday.

“We think celebration is premature, because at the end of the day we have 100% counterparty risk with one exchange,” Lee said. The firm is talking to others, including Coinsetter, BitFinex, ItBit and BTC-e. “We tend to pick exchanges based on who can provide the most liquidity. That’s what our customers want – good fill prices.”

When Mt. Gox imploded, BTC.sx lost all of the bitcoins that it had stored in the exchange’s wallet. However, Lee had begun withdrawing some funds earlier and reducing his exposure to the exchange based on worries about its future. “We do hold a trading reserve out at the exchanges, and that balance is getting moved in and out of,” he explained. “That money depends on the level of risk that we wanted.”

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However, Lee maintains that BTC.sx is still a fully-funded reserve. “We would never ever run a fractional reserve,” he protested. “Businesses that want to run fractional reserves have to be very honest about that, especially in the world of bitcoin.”

BTC.sx’s reserves are held in a separate off-line wallet, he said, and the company doesn’t run a hot wallet at all. The firm has a withdrawal time of 24 hours. Whenever a withdrawal is requested, all account reconciliations are performed before it is processed. “It’s time-consuming for us, but security of customer funds should be considered paramount,” he said.

However, the company isn’t able to formally prove its reserves at present. An audit is “on our to do list,” Lee said. The company is now dually incorporated in Singapore and England, and its financial returns come out at the end of the year, so the order will have to appear before that, he said.

The firm relaunched quietly yesterday. Before that, it tested for a few days with its closest users to ensure that the Bitstamp integration was running smoothly. Over the next few days, it will increase trading limits.

BTC-SX used its downtime to perform some upgrades that would ensure its ability to scale as a business. It more than doubled its server capacity, Lee said, and introduced more bookkeeping updates on the back end. It has increased its team to five people in recent months, including its London-based developer team.

Expect to see BTC.sx signing with another one or two exchanges in the next month, Lee concluded. The firm, which began with a $150,000 investment, will also announce the completion of its latest funding round later this month.

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