Finally, A Bitcoinica Replacement?

A new Bitcoin exchange / leveraged trading service is set to launch in the coming weeks. Going by the name of "Kraken," it will be the first site to offer leveraged trading since the beleaguered Bitcoinica went offline last year. It will also be a Mt.Gox-like Bitcoin exchange.

I had the opportunity to browse the site, and it certainly looks promising. Hopefully it will be as secure as it is visually appealing.

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Bitcoinica's Founder to Cease All Involvement with Bitcoin

Hot on the heels of a major hack at Bitcoinica, Zhou Tong, the founder of Bitcoin's most successful Bitcoin project to date, has just announced that he will no longer involve himself in any Bitcoin-related projects:

"I, Zhou Tong... will discontinue all involvement in Bitcoin-related projects after the Bitcoinica incident has been fully resolved until further notice. I failed at one thing... that is generating value for the society. Bitcoinica did create a place for people to trade more efficiently and provide liquidity to the market. However, speculation is a zero-sum game (or negative-sum, strictly saying). I know there can be many justifications for Bitcoinica's value, but all of them are against my intuition and values."

In his announcement, he also revealed that Bitcoinica was actually sold in November of 2011, with the official handover happening in January of this year.

Not surprisingly, he will be moving on to pursue other projects:

"I have started working on another project (not Bitcoin-related) that is going to make a little difference on the Internet. So far I have achieved great progress and I'm pretty confident about this new venture."

Zhou Tong, a 17 year-old developer from Singapore, took the Bitcoin community by storm by creating the first advanced trading platform for Bitcoin. Several security incidents eventually pushed the site to the brink, the most recent being a $90,000 USD theft on May 11th. The site currently remains offline.

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Bitcoinica Shutdown is Potentially Permanent

The latest from Zhou Tong in regards to yesterday's hack and the loss of over 18,000 Bitcoins:

- It's more serious than we thought. We need some additional time to come up with a compensation proposal.

- Likely we will either shut down the platform or re-develop entirely (which will take months instead of days).

- The preliminary decision: reimburse for the full amount, including margin balances and position P/L.

- The root cause of this problem is an email server compromise. The email server belongs to one of our team members.

- Reminder again: Please do not reuse your Bitcoinica passwords as the database server was compromised. Do not click any links in the email. All Bitcoinica announcements will be updated on Bitcoinica website when available.

Important Disclaimer: I'm not a partner of Bitcoinica LP after the corporate reorganisation. Therefore, I have no financial obligation in this matter as I'm only an employee of Bitcoinica LP responsible for daily operations (no shares, no voting). However, I'll do my best with the team to resolve this problem as quickly as possible and minimize the impact for the community. I appreciate your patience and understanding.

Sadly, these events are unfolding only 18 days after ownership of Bitcoinica was transferred to Intersango, who is now left holding the bag.

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Developing: Bitcoinica "Hacked" - Potentially 18,000 BTC ($90,000 USD) Stolen

Bitcoinica has been shutdown until further notice, following a theft of 18,000 BTC. News of the hack was posted this morning by Bitcoinica's founder, Zhou Tong:

"Today, we have discovered a suspicious Bitcoin transaction that doesn't seem to be initiated by any one of the company owners. Some of them are not online at the moment so this is not conclusive.

 Suspicious transaction:

{
"account" : "",
"address" : "182tGyiczhXSSCTciVujNRkkMw1zQxUVhp",
"category" : "send",
"amount" : -18547.66867623,
"fee" : 0.00000000,
"blockhash" : "00000000000003f6bfd3e2fcbf76091853b28be234b5473a67f89b9d5bee019c",
"blockindex" : 1,
"txid" : "7a22917744aa9ed740faf3068a2f895424ed816ed1a04012b47df7a493f056e8",
"time" : 1336738723
},

We have contacted Rackspace to suspend all our servers and lock down our accounts. All your trading and financial data is safe (as far as I know), apart from the Bitcoin loss. Thank you for your patience and understanding while we investigate this issue in detail."

And in a follow-up post:

"Our data is kept inact. Any order placed before the shutdown will still be valid. However, no order execution will happen (no zhoutonging either).
If the market moves significantly, we will come up with a proposal to compensate disadvantaged customers once the investigation is complete."

Bitcoinica was also the victim of a 43,000 BTC ($215,000 USD) heist back on March 1st.

It will be interesting to see how the market is affected by the inability of traders to take leveraged positions in either direction. Also, you should not surf to Bitcoinica.com, as the site has been redirected to a porn site.

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Bitcoinica Becomes Registered Financial Services Provider

Bitcoinica's boy-genius, Zhou Tong, today announced that Bitcoin has become a registered financial services provider under the laws of New Zealand.  Arguably one of the greatest Bitcoin success stories, Bitcoinica continues to thrive, and the site's new status will add legitimacy to the Bitcoin economy as a whole.

The press release can be found here: 

https://www.bitcoinica.com/posts/registered-financial-services-provider

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Imminent Long Squeeze?

There has been an interesting development over at Bitcoinica, everyone's favourite broker for leveraged trading in Bitcoin land.

Several users reported errors when trying to cover their short positions or establish long positions. Zhou Tong, Bitcoinica's founder and lead developer, responded to the unusual occurrence with the explanation that the brokerage had run out of funds in their Mt.Gox account, thus preventing any further purchases of Bitcoins:

We seriously apologize for any inconvenience.

When Bitcoinica was first built, we included a circuit breaker feature to stop trading at one direction when we are out of USD or BTC. However, it has almost never been triggered until today.

Unfortunately, we have a lot of long positions are we're currently unable to fulfill everyone's request to buy. Even though we do not want to interrupt regular market trading activity, we have no case because we don't want to be trading against our customers in this extreme situation.

Liquidation of short positions is also affected but we had no choice. Withdrawal in USD is obviously, also affected. When some more people decided to liquidate their long positions or go short, or more USD funds are deposited, we will adjust the redflag accordingly to allow buying trades.

TL;DR: Bitcoinica can only sell for you at the moment.

Zhou Tong also suggested that a long squeeze was imminent, due to the large number of long positions which would be liquidated in the event of a large sell order hitting the market. Whether there is actually anyone out there with enough Bitcoins to test that theory, remains to be seen, as there is currently $250,000 ready to gobble up 65,000 Bitcoins on Mt.Gox between $3.80 and $4.20.

In a nutshell, leveraged or not, no one appears willing to let go of their Bitcoins.

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Explanation for the 9/11 Volatility

In case you were wondering just what the heck was going on, here's your explanation. For the first time, traders have levered access the Bitcoin market, and it's showing. In just seconds, the market jumped nearly 50% on huge volume.

It remains to be seen if things will settle out, but for the time being, the market remains quite volatile. Bitcoinica is suddenly the second biggest Bitcoin exchange, by volume, and it's been open for less than three days.

***UPDATE*** Bitcoinica now posts their trading volume on their home page - it's now up to 19,000 BTC over the last 24hrs. Incredible.

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