Have you ever wondered why the price of Bitcoin on the Mt. Gox trading platform is typically nearly a hundred dollars more than anywhere else?
I am learning the reason through firsthand experience, otherwise known as the school of hard knocks.
Imagine a place where you can freely buy and sell Bitcoin, and where you can easily deposit or withdraw both Bitcoin and your favorite fiat currency. If you have extra Bitcoins sitting around and what you need is fiat, you sell your Bitcoins, then withdraw the fiat. If what you want is Bitcoins then you buy them and once you do you can send them anywhere you want.
Now imagine that you got used to this scenario and you found yourself in the need for a large infusion of fiat money. So you gather together all the cryptocoins you have, turn them into Bitcoins and send them over to this happy place. What you could scrape together wasn’t quite enough so you liquidated a Bitcoin investment and sent its proceeds over to the same place. Then you sold your Bitcoins and put in a request to withdraw the fiat you gained.
This is the situation I found myself in a couple weeks ago when I sold off my ASIC MINER interest in order to make a third and final trial mortgage payment, so that the loan modification program the lienholder offered in lieu of repossessing our home could be finalized. It wasn’t the best time to sell, but whatever loss I took seemed cheap in comparison to losing our home, so I bit the bullet and sold.
Imagine what it would be like to have just done that and over the next couple weeks come to the realization that you are not getting that fiat in time. In fact, it’s doubtful that you will ever get it. First the weather stymied your attempt. Then the withdrawal processor suddenly dropped the client which currently holds your fiat. There is one remaining option, the money order, but you are starting to have doubts about that ever working out. If that doesn’t work, then basically your fiat is stuck.
If the money order doesn’t work, there is one final option, but you’re reluctant to exercise it.
Earlier this afternoon when I logged onto my Camp BX account I saw that my money order request still has yet to process. I quickly fired off a support request asking for a date and time that this would be processed. Then I contemplated my one remaining option: buy Bitcoins and send them back to my wallet.
What happens when I realize this may be the best way to move forward, but so do several thousand other customers? We now have a situation where more people want to buy Bitcoin than sell it, and the price goes up, and up, and up. The customers know they are paying way too much for those Bitcoins but they are unable to move their fiat to their own bank accounts, much less an alternative trading platform, so they hold their nose and buy. As I write this the Camp BX price for Bitcoins is thirty-five dollars higher than the average going rate on the other exchanges with the exception of Mt. Gox.
I decided to give my money order a couple more days to process, but bit the bullet on the remaining balance on my account. I had $910.56 in my account, bought 1.078 BTC at $840.01—in other words, at a substantial loss. I had sold most of the Bitcoins at right around $800 to amass that amount of fiat in the first place.
Then I sent the 1.078 BTC to my address and initially panicked as neither my wallet nor the block chain registered the transaction for several minutes. Fortunately the transaction went through without a hitch and at least I had recovered half of my balance from limbo.
The price of Bitcoin on Camp BX went up more after I bought mine as more and more people are making the painful decision to do exactly what I did.
Mt. Gox is notorious for its customers’ difficulty with withdrawing their fiat money from their accounts. Those who continue to use Mt. Gox are most likely trading in and out of Bitcoin and ultimately plan to withdraw their profits in Bitcoin, not fiat. Those newbies who were not aware of this difficulty and find themselves in a bind where they need the money eventually come to the conclusion that they are better off buying Bitcoins for more than they sold them for and moving them to a wallet they fully control. There are apparently enough of them that Mt. Gox’s price consistently remains close to one hundred dollars higher than on all the other exchanges. This is my theory, anyway. If Camp BX doesn’t figure out a solution to its fiat withdrawal problem soon its Bitcoin price will approach Mt. Gox’ price.
Once I got my Bitcoin and change out of Camp BX I combined it with Bitcoin gained from mining and selling Devcoins and placed an order with Coin RNR. I sold the entire lot of Bitcoin for right around $786. After having bought the bulk for $840.01 I sold at a tremendous loss—the classic buy high and sell low scenario.
I’m not going to calculate the exact amount of money this whole Camp BX fiasco cost me because I believe I might get too depressed if I did. Just chronicling it in generalities is bad enough. First I sold off my ASIC MINER holdings while the price was climbing in order to get enough funds to make a house payment. I watched the price of what I’d just sold climb some more after the sale and considering what happened next in retrospect I could have held onto it for over two weeks longer and capitalized on some of the growth. So there’s missed opportunity number one. The price appears to be dropping again now so it’s very possible I will get to rebuy those holdings at a price comparable to or even better than what I sold them for. Then I waited nearly three weeks for two ACH deposits which never materialized while the deadline on my house payment loomed and other bills piled up. When it was clear I was not getting that fiat, I made a special round trip of fifty miles to go pick up a paycheck that is normally mailed to me so I could deposit it in the bank immediately. As those funds weren’t enough I sold off more Devcoins and Bitcoin in the process of placing a small order with Coin RNR. The following day I placed an additional order and paid forty dollars to have it instantly wired to my bank account. Today I bought back Bitcoins for an average of forty dollars more than what I’d sold them for just to get some funds out of Camp BX and back to where I could do something with them. Then I sold them back for fiat at $786, over fifty dollars less, to place my order with Coin RNR.
The good news is that the proceeds from my Coin RNR order hit my bank account later on in the evening, even though I’d only requested the next day ACH transfer, and I was able to knock out three more bills. As I said before I’m going to give Camp BX another day or so to actually process my money order request, but if they don’t step on it I will probably do the same with the remainder of the fiat funds tied up in my account. Although I do not believe the company is deliberately trying to defraud anyone, I do have a slightly jaded view about the various excuses given for why ACH withdrawals were not being processed. I sense the possibility of completely losing my remaining funds. If the worst happens, then it’s preferable to lose a couple hundred dollars and recover the remainder than to try to hold out for the full value and lose everything.
The deeper reason I was willing to take that hit and why I am willing to go through it again is that I would like to move forward from this lengthy financial limbo where I have the funds but still can’t pay my bills. I have financial goals beyond paying urgent bills and I’d like to knock those out and move on to some other things I’d like to do with fiat income. I’d like to start knocking out my consumer debt, and there are a few things I’d like to buy with my money too, mostly for the children. I felt at this time it made sense to do what I needed to do to keep the money flowing even if I lost some in the process. Although I’m not happy about the losses I do feel better about the bills I paid and the confidence of getting on better financial footing.
I have gained some valuable knowledge about the way money moves, especially how it’s a piece of cake to move Bitcoin while it can be a real pain to move fiat. I also learned that I don’t really need an actual Bitcoin/fiat exchange to handle my trading needs. I do not need to get top dollar for my Bitcoins; it is more important to me that when I do sell them I can get the fiat money delivered to me quickly. They say that time is money, and you pay for speed. If the price of speed is I get less for my Bitcoin, then I’m all for it. Ultimately, the cost of using an exchange to sell Bitcoin was that I had to buy them back at a premium, then sell them again at a discount. Had I known about Coin RNR from the beginning I would have only needed to sell at a discount once. While it’s certainly possible to have both a full blown exchange and ease of access to funds, and for a while Camp BX delivered both, I’m starting to wonder if that isn’t trying to juggle too many conflicting priorities given the uncertain legal/regulatory status of Bitcoin. Now that I’m aware of differing priorities, I find I need to pick the objective that’s most important to me and be willing to let go of some other objectives.
Until I went through this ordeal I didn’t realize there was so much complexity to the decision to sell off some cryptos for fiat to enhance the household income. Now I know.