Fake Bitcoin, Real Obligations: What Really Happened on Bithumb

Interesting news is coming out of the Bithumb exchange.

1. First, the Bitcoin price there drops about 10% below the market average. And given that the market-wide price was already unusually low, Bithumb's rate looked unbelievably attractive for buyers.
2. Then definalist reports that the reason was a mistakenly credited deposit of 2,000 BTC to one of the exchange's users, which the "lucky winner" immediately sold using a market order.
3. Finally, CoinDesk, citing Bithumb, explains that this user was not alone. There were hundreds of them. The problem came from an incorrectly credited reward in some promotion: participants were supposed to receive 2,000 KRW, but instead saw 2,000 BTC credited to their balances.

The exchange itself also confirmed that "some accounts that received Bitcoin sold it". But this last statement, in my view, needs clarification.

• Let's be precise: did these "some accounts" actually receive Bitcoins? No. I very much doubt that Bithumb has enough of its own (non-client) BTC to send 2,000 BTC to hundreds of accounts.
• If they did not receive Bitcoins, what exactly did they sell? They sold the exchange's obligation to deliver that Bitcoins.
• And most importantly, every trade has two sides: a seller and a buyer. Which means there are people who paid about $55,000 per Bitcoin (in Korean won) and bought at least several thousand Bitcoins that did not actually exist - Bitcoins that the exchange is now obligated to deliver to them.

This is the key takeaway from the story: it is no longer only Binance buying billion of dollars worth of Bitcoin. Now Bithumb, too, is forced to buy Bitcoin for a comparable amount - or perhaps even more.

The market reacted with a certain irony and decided not to let the Korean exchange buy Bitcoin at the attractive prices that were available at the time of the incident. A 12% rise in a single day feels like a mockery of the exchange.

So what happens next? Will Bithumb buy at higher prices? Or will it refuse to honor its obligations?

If you would rather not worry about this kind of risk, get your Bitcoin not from exchanges, but from Rabbit.io. Here you receive real Bitcoin, not exchange IOUs that not every exchange is able to honor.