Basically, BFL pre-sold a ton of miners to people, never actually sent them, mined a ton of bitcoin 'testing' them and were then sued when they refused refunds. The FTC got involved and told them to send customers their money so at some point, BFL has to liquidate a large number of coins to meet those obligations.
People have tracked large portions of the sell pressure to known BFL wallets and the rest of the downward pressure is probably just follow-on selling continuing the yearly trend.
On December 23 a Missouri court ordered a winddown of Butterfly Labs and they began a refund plan.....now here is my theory...I was looking at the blockchain and came across a 5000 btc utxo taken incrementally down to 0....it was sold off continuously. It took me to here.
https://blockchain.info/address/12WRnQR85ZUT7dhmaHBNL5dde2QL...
Activity on that address started back up on 12/23 the day the courts provided control again. Ive tied it to butterfly labs because a OP_RETURN said paycoin.com linked to Josh Zerlan an employee of butterflylabs.
I think youll have butterfly labs forced to continue to sell the remaining 94000 coins in this court mandated wind down in order to provide refunds to those customers....That is a ton of coins to continuously dump...it exceeds 24 hour volume on the largest exchange.
From all the theories I've seen, the most likely to me is that this was a business that slowly drifted into a whirlpool of fraud and insolvency, probably starting with good intentions.
Most likely, they had a hard time maintaining the right ratio of bitcoin/yen/USD to match the reality of their customer's deposits (through incompetency) and got hit hard when the "wrong" price fluctuations occurred... when this happened, and in which direction the fluctuation happened, I cannot say.
After that, they were deeply into a fractional reserve situation and thought "hey, we own a large part of the Bitcoin market, we can probably play the price a bit to make our customers whole again, without anyone knowing what had happened."
In this way, they gradually drifted from "cutting corners and doing the ugly things required to keep a business afloat" (aka mild, veiled fraud) into outright fraud.
What people don't understand is that when BFL mined with the hardware they sold, they effectively made the difficulty of the block chain rise stupidly fast, thus lowering the value of the system. Any advantage customers (like me) would have had was thrown out the door.
It is essentially the equivalent of a car dealer selling you a car claiming it is new when in fact they drove it 150,000 miles.
I was told by a BFL employee that my order would have been shipped before the end of july 2013... I didn't get my units till 11/4/2013
During that time I watched what could have been my returns fly out the door.
Look at the trade data, one person made a large selloff that triggered a cascade of automated responses. That, of course, could only happen if that person was hoarding BTC. Maybe he read that article and decided to cash out as a result.
A better solution imho would have been to ask for the customer's Bitcoin address and do their testing with the client reaping the rewards of mining early.
The biggest mistake BFL made was basically ensuring that everybody lost money. They were too greedy. If they had even made their customers 5% ROI I doubt they would be in the situation currently.
There were reports that they laid off a number of employees in late January before this all went down. Maybe one of those disgruntled employees took a copy of the cold storage private keys with them.
There's plenty to warrant suspicion, but it turns out there is a credible explanation for the seize-up in BTC payouts being a technical problem that will take some time to resolve:
This analysis describes a Bitcoin transactional defect of which I wasn't previously aware. However, from a vaguely-similar much-smaller incident involving the default client, I know that having a local wallet confused about what prior transactions are truly spendable can take significant time and custom effort to unwind.
This is another possibility people are overlook, that perhaps they never had them. Perhaps they simply built up a liability of 800k bitcoins by trading on their own exchange and making some bad calls.
I can imagine another scenario where they secretly converted all the money to Bitcoin thinking they could skim a profit from the rising prices and then pay back the client in USD, but now Bitcoin isn't liquid enough and they can't get their money out so they are stuck.
I think they might be manipulating the market. Here's my translation:
"Because people discovered that we lost or stole money, and that would destroy our operations, someone who doesn't want to be responsible for making a decision decided that we could try causing a market crash by dramatically wiping our accounts, lowering the price enough that we could buy our way back to solvency. It didn't entirely work, so we're making this announcement, which is also meant to lower the price, or if that doesn't work, allow us to segue back into operations. We will be monitoring the Bitcoin price and will react accordingly."
I believe it. We know there have been times when withdrawals of BTC stopped and the stated resolution was that they had to top off the hot wallet from cold storage. Now you might think it would be pretty dan hard to be scammed for years and not notice so many missing coins but we also know they are incompetent so I'm gonna say this could be legit.
Butterfly Labs was basically using the customer paid rigs to mine Bitcoin for themselves before they shipped customers obsolete devices. They only sent me mine after I called my CC company, disputed the charges & reported the non-delivery as fraud...magically, my rig showed up a week later.
The assumption isn't that they ran off with the btc. It's that someone else did, now they are insolvent, and to prevent the fallout they are trying to live off the float and hide their insolvency until they have made themselves whole again.
http://www.reddit.com/r/Bitcoin/comments/2sdwf8/butterfly_la...
Basically, BFL pre-sold a ton of miners to people, never actually sent them, mined a ton of bitcoin 'testing' them and were then sued when they refused refunds. The FTC got involved and told them to send customers their money so at some point, BFL has to liquidate a large number of coins to meet those obligations.
People have tracked large portions of the sell pressure to known BFL wallets and the rest of the downward pressure is probably just follow-on selling continuing the yearly trend.
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