While the price of bitcoin is within striking distance of all-time highs set in March, worries about the state of the network’s infrastructure are combining to depress sentiment.

Chief among concerns are the ongoing issues at British Virgin Islands-based digital currency exchange Bitfinex, as the market’s dominant US dollar exchange saw banking problems appear seemingly out of nowhere earlier this month.

To recap, it was revealed just weeks ago that Bitfinex has been unable to process outbound wire transfers from the banks it works with in Taiwan. The issue, the exchange said, was that Wells Fargo, acting as a correspondent bank for those Taiwanese institutions, had refused to handle those transactions.

However, the issues at hand go deeper than simply one exchange.

Complicating matters is that some fear Bitfinex’s problems could prove systemic due to its ties to other exchanges. Further, with bitcoin and litecoin withdrawals still barred at major exchanges in China following a crackdown by the country’s central bank, it’s difficult to determine just how much of the market is functional at the moment.

Long-time bitcoin investor and blockchain startup founder Vinny Lingham went so far as to call the situation “perplexing”, saying that he’s unable to read the current situation. (And this statement comes from an investor nicknamed “Bitcoin Oracle” for his ability to predict price movements).

Lingham told CoinDesk he fears that investors may be at risk due to the banking issues observed at Bitfinex, describing this as the “reality of the situation” given current information.

Still, others went a step further. Nejc Kodric, CEO of digital currency exchange Bitstamp, called the situation “similar to Mt Gox”, a reference to the now-defunct Japanese bitcoin exchange that collapsed in 2014, resulting in millions of dollars in customer losses.

Kodric further stated that he doesn’t believe the current price reflects “organic growth”, while worrying that issues could compound, creating a serious issue for the market as a whole.

“There are three things that an exchange can have trouble with. The first is having a hack, the second thing is being shut down or warned, or anything around regulators, and the third is getting your accounts shut down,” he said, adding:

“You can survive the first two. But the third is a big one. That’s a lethal injection for an exchange.”

Other commentators have largely brushed off these concerns, expressing optimism that the exchange – which paid back customers after a $65m loss in a matter of months last year – has shown the capacity to weather blows.

Already, the exchange is said to be looking for other banking options.

Domino fears

Other market observers have discussed fears that a domino effect could play out should Bitfinex’s banking issues prove prolonged, or worse, fatal to the health of the exchange.

So far, it seems investors are taking precautions.

An address identified as a Bitfinex cold wallet (where it keeps user funds away from live internet connections) shows customers are withdrawing bitcoin holdings in the account steadily.

A lesser-publicized development is that Tether, a startup offering a digital asset tied to the US dollar (and that shares a common ownership with Bitfinex) has seen its offering lose its dollar peg. In short, the technology behind tether aims to tie cryptographic keys with real-world value, ensuring $1 is always worth one ‘USDT’.

At press time, however, Tether has been trading below the $1-mark for over a week. It’s currently trading at $0.91, according to data from CoinMarketCap.

But while the idea for a “stable cryptocurrency” or one pegged to fiat money isn’t new, research from the Cato Institute shows past attempts have largely failed, with projects such as CoinoUSD and NuBits experiencing notable issues.

Tether, however, has perhaps reached a scale beyond these projects, serving as one of the primary trading vehicles for Poloniex, a cryptocurrency-only exchange. (Poloniex has traded $5m in USDT over the last 24 hours, and has used the token since 2015 as a way to offer an alternative to fiat funding).

Shawn Wilkinson, CEO of Storj, a startup from the early crypto 2.0 scene that would spawn Tether and other early blockchain applications, lamented that the idea itself is perhaps flawed.

“Basically it only takes one bank account frozen or some cash being seized and suddenly fractional reserve,” Wilkinson said. “And in crypto that’s almost a 100% certainty.”

The more extreme doomsday theory goes something like this: Should USDT fail because of issues at Bitfinex, this could in turn impact Poloniex, thereby increasing the total market damage given that Poloniex is a leading exchange for both new and existing cryptocurrency listings.

Representatives from Tether declined to comment when reached, though the project’s co-founder and former CEO, Reeve Collins, said he was optimistic about that the issues would be short-lived. (Collins is no longer involved in Tether and is working on his own blockchain stealth startup).

“I’m sure they will pull through. The utility of that coin is too great to not overcome the bumps in the road,” Collins said.

Opportunity calls

For now, however, active traders appear to be migrating to over-the-counter buy and sell options due to issues at major exchanges. What’s more, overall exchange volume appears to have declined since the year began, according to available market data.

Bobby Cho, a trader at OTC firm Cumberland Mining, reported an increase in transactions and overall interest in its offering in recent weeks.

“Since the announcement from Bitfinex and Tether about intermediary banking difficulties, we have seen firsthand that bitcoin trading volume is moving away from Bitfinex and Tether towards over-the-counter trading,” he told CoinDesk.

Zhao Dong, a private OTC trader based in China, noted that participants in that market – long one of the more dominant for digital currency trading – share similar concerns.

“Weird market now,” he remarked. “Chinese exchanges can’t withdraw bitcoin, the biggest exchange Bitfinex can’t withdraw US dollars.”

Still, he said any change in the market brings opportunities for savvy investors, and that well-connected network users are still easily able to “cash out” through the range of available global exchanges.

Same-old song

Yet for all the new drama, legal sources in the industry say these latest issues are part of a very old problem.

The tension between the banking industry and the nascent bitcoin startup space isn’t exactly new, though it tends to rear its head periodically. Nor is Bitfinex the first exchange service to have problems with Wells Fargo, as CoinDesk reported back in 2014.

Back then, it had become increasingly clear that major banks weren’t willing to accept the perceived risks. As a result, some institutions moved to close accounts held by bitcoin startups.

But the banks aren’t just targeting bitcoin companies – financial institutions worldwide have been shuttering accounts held by companies that offer money services in a bid to trim the risk of potential laundering.

According to Carol Van Cleef, financial technology lead for law firm BakerHostetler, correspondent banks like Wells Fargo have been scrutinizing not only their customers, but also their customers’ customers in recent years.

It’s this state of affairs, she suggested, that may have ensnared Bitfinex. But it’s unclear at this time what drove Wells Fargo to take the action it did – the bank has, to date, declined comment on the matter – or if it simply arose from the confusion banks have experienced in an era of growing regulation.

When it comes to policing activity, Van Cleef said simply:

“There’s confusion about how far banks have to go.”

Stan Higgins contributed reporting.

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