Bitfinex has reimbursed its first wave of customers.
Announced 1st September, the Hong Kong bitcoin exchange revealed it had purchased more than 1% of the blockchain debt tokens it issued to users in August as a way to pay them back for losses it incurred in a debilitating hack.
While a small step to recovery, analysts were largely positive about the move due in large part to the exchange's decision to purchase the tokens at an above-market value of $1 each, roughly double the market value when the redemption took place.
Since the company's issuance, the value of the tokens has fluctuated, but it has never approached the $1 mark promised by the exchange, sparking prominent concerns it would seek to buy back its own liabilities at a discounted market rate.
However, many still harbor doubts about the exchange, which lost roughly 120,000 BTC ($70m) in a security breach, and how it will navigate its complicated financial situation going forward.
While analysts said Bitfinex's efforts thus far are "respectable", others argue the markets will need to wait and see whether the exchange is committed to "a full recovery of lost coins".
To rewind, the buyback is perhaps the most significant of a series of small steps made by Bitfinex since it temporarily halted trading and withdrawals last month and ultimately issued its own debt tokens on a blockchain.
The exchange first announced plans to generalize the financial loss it suffered in the hack across all customer accounts nearly a month ago. In exchange for the 36% haircut, Bitfinex provided accountholders with blockchain assets called BFX tokens.
At the time, the exchange stated BFX tokens could either be redeemed by Bitfinex or converted to equity in its parent company, iFinex, though many doubted the claim and its legality.
Yet, Bitfinex's decision this week "instills more trust and allows them to simultaneously develop the BFX marketplace", said Rik Willard, founder of and managing director of Agentic Group LLC.
Willard is not the only analyst who noted the redemption’s impact on the appeal of BFX tokens. Elsewhere, cryptocurrency investment fund manager Jacob Eliosoff emphasized that the market "is liking" the redemption.
He pointed to the token’s climb in value during yesterday's trading from $0.50 to $0.57 as a sign this assertion is correct.
However, Eliosoff emphasized that he is more troubled about what he sees as a lack of transparency by the exchange in the wake of the hack. As reported last week, the exchange is reportedly still investigating the incident, though no loss report has yet been issued.
Other information has been scarce, as noted by Eliosoff.
"If their plan is to buy back the BFX in dribs and drabs like this, why not announce it? How did these funds suddenly become available?" he told CoinDesk.
He noted that Bitfinex has more time to plan and communicate than it did immediately following the hack, and therefore the exchange should take advantage of this opportunity.
Arthur Hayes, CEO of BitMEX, voiced similar concerns, telling CoinDesk:
More specifically, Hayes and Eliosoff would be interested in learning the financial performance the company requires to trigger future redemptions and "what portion of revenue is being dedicated toward extinguishing this liability".
While Eliosoff expressed his doubts about Bitfinex’s transparency, Petar Zivkovkski, director of operations for full-service bitcoin trading platform Whaleclub, took a slightly darker slant on the the exchange’s response to the security breach.
"I hold the view point that Bitfinex is trying to financially engineer their way out of this mess while transferring risk and debt onto their customers through their issuance of BFX debt tokens," he said.
More than one legal expert has asserted that Bitfinex has placed itself on shaky ground by distributing these tokens, as doing so opens up the possibility of both lawsuits and fines from government agencies.
Zivkovski’s portrayal of the situation may not seem particularly optimistic, yet Eliosoff noted that Bitfinex, at the very least, has shown it can keep its word.
Instead of buying BFX tokens for $1 each, the exchange could have just as easily taken the funds used and bought twice as many of these digital assets.
First flowers image via Shutterstock
CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk offers all employees above a certain salary threshold, including journalists, stock options in the Bullish group as part of their compensation.