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Bitstamp Review

Bitstamp Review: Trusted Exchange but Few Coins

Bitstamp in Brief

Bitstamp is one of the oldest bitcoin exchanges and the largest European exchange by trading volume. Along with US dollars, Bitstamp supports Euros as well as five digital currencies. Headquartered in Luxembourg, Bitstamp’s exchange operates from London.

Bitstamp’s CEO Nejc Kodrič believes his company can be a “stepping stone between the traditional financial and cryptocurrency worlds.”  Bitstamp registered in Luxembourg as a fully-regulated European Union payment institution. The CME Group, owners of the Chicago Mercantile Exchange, includes Bitstamp in the basket of exchanges to calculate bitcoin pricing for bitcoin futures.

Pros

  • Solid management with a focus on security and stability.
  • Respected by traditional financial industry.

Cons

  • Limited selection of five digital currencies.
  • Only supports Euro and US dollar transfers.
  • Still catching up on verifications and support tickets

What is Bitstamp?

Bitstamp executives
Source: Bitstamp

Bitstamp is the largest European digital currency exchange. It has more than three million customers who conduct trades in five digital currencies, US dollars and Euros.

History

Slovenian bitcoin enthusiasts Nejc Kodrič and Damijan Merlak launched Bitstamp in 2011. Two years later, Bitstamp moved its exchange operations to London. In 2016, Bitstamp’s headquarters moved to Luxembourg where the company became the first fully-regulated bitcoin exchange in Europe.

Bitstamp emphasizes the security and stability of its operations in an unregulated industry. “We are aware of the key role we play in regulating this sector of the financial industry,” Kodrič explained to potential crowdfunders, adding that “providing the oversight and reassurance that customers, investors and the financial industry need from a digital asset exchange” is a core commitment at Bitstamp.

CME Group endorsement

Bitcoin futures market on CME
Source:CME Group

Bitcoin’s reputation received a boost in 2017 when CME Group, the Chicago-based derivatives market formerly known as the Chicago Mercantile Exchange, launched a bitcoin futures market. Bitstamp benefited from this move as well since the CME Group included Bitstamp in its panel of exchanges used to calculate the Bitcoin Reference Rate.

As Kodrič explained to CoinTelegraph: “Exchanges providing the pricing data need to have solid systems to detect and prevent any potential market manipulation…. We’re proud that we’ve earned the trust of the industry.”

Leadership and investors

Nejc Kodrič continues to lead Bitstamp as its chief executive officer. Kodrič is supported by several other top executives including:

  • Edward Kemp, Chief Financial Officer: Formerly the Senior Financial Officer for J.P. Morgan’s Luxembourg operations, Kemp has a long finance career in the European banking and railroad industries.
  • David Osojnik, Chief Technology Officer: An early bitcoin adopter, Osojnik led system operations teams at several Central European television and media companies before joining Bitstamp.
  • Vasja Zupan, Chief Operating Officer: Zupan began his career as an architect and designer before getting into the startup scene and management consulting.
  • Michel Leyers, Chief Compliance Officer: Prior to joining Bitstamp last year, Leyers managed compliance for the Luxembourg-based Aviva Investors.
  • Stéphane Leloup, Head of Legal: Leloup’s fifteen years in compliance includes stints in the financial industry at Societe General, J.P. Morgan and State Street Bank as well as four years leading compliance at the steel and mining giant ArcelorMittal.

Kodrič and Merlak serve on Bitstamp’s board of directors along with Dan Morehead, who serves as the board’s chairman. Morehead held several leadership positions in the hedge fund industry before founding cryptocurrency-focused Pantera Financial Management. Pantera was the lead investor in Bitstamp’s first funding round.

Protecting customers’ coins

Legal and regulatory compliance

Bitstamp’s exchange operations are based in London. The British government does not regulate digital currencies. Even so, Bitstamp chooses to comply with British anti-money laundering (AML) regulations.

That decision is why Bitstamp’s know-your-customer (KYC) procedures are more rigorous than exchanges that ignore the established financial system.

To see how far Bitstamp will go to protect its integrity, check out the detailed account in Ars Technica of how the exchange outed a corrupt DEA agent. Special Agent Carl Force had extorted hundreds of thousands of dollars in bitcoins from Silk Road founder Ross Ulbricht (also known as Dread Pirate Roberts). When Force tried to launder the bitcoins through Bitstamp, the exchange’s anti money laundering processes quickly raised red flags. Force is now doing time in a federal prison in Kentucky.

As part of its “prudence and oversight” policies, Bitstamp hires one of the big four accounting firms to audit its books every year. The annual examination helps ensure adequate capitalization and sound management of the exchange’s holdings.

Coin listing policies

Bitstamp’s conservative approach means it only deals in the highest-volume digital currencies.

Network security

The need for tighter controls over the company’s IT systems became apparent in early 2015 when hackers stole nearly 19,000 bitcoins from a Bitstamp hot wallet. Bitstamp executives have never discussed the hack in detail – just the efforts to repair the damage.

However, a throwaway reddit account posted an internal Bitstamp document that showed the hack was a focused phishing attack that successfully transferred Word documents with malicious code.

Bitstamp went offline for a few days to rebuild its systems from the ground up. The company fully honored its customers bitcoin holdings. Today, 98% of the digital currency customers entrust to Bitstamp are kept in an offline cold wallet. The remaining 2% is kept in a secure hot wallet to ensure the exchange’s liquidity.

Bitstamp now has an outside auditor conduct annual reviews of Bitstamp’s IT security systems and processes.

Bitstamp offers two-factor authentication using app-based authentication rather than use less-secure SMS communications. You have a choice of installing either Google Authenticator or DUO to your smartphone.

Customer support

You’ll find few self-serve support options beyond Bitstamp’s FAQ page. If you can’t find your answer there, then the only way to get help is by opening a support ticket from within your account.

Support staff also monitor forums like reddit and social media and provide information through the @supportbitstamp Twitter account.

Bitstamp reputation

As with most exchanges, you will find withering reviews of Bitstamp on Reddit, in app stores and other online forums. Long delays in executing currency transfers, failed transfers and a protracted verification process are the most common complaints.

The issues customers experienced were due to a combination of the exponential growth in new customers, the relative inexperience of these new customers, and Bitstamp’s internal processes which were unable to cope with the rapid 1,384% growth in trading volumes.

The limited amount of support information on the Bitstamp website may contribute to the troubles the exchange has experienced. Any question a new customer has that is not easily found on the FAQ page results in a fresh ticket.

Bitstamp’s Kodrič apologized in a lengthy blog post earlier this year in which he outlined how Bitstamp is working through the impact of getting tens of thousands of new customers every day.

  • Staffing Up: Over the past year Bitstamp quadrupled the number of people working in verification and KYC, customer support, software development and payment processing.
  • Call Center: Bitstamp will add telephone support to its customer care operations.
  • Triage Open Support Tickets: By focusing on bank transactions, cryptocoin transfers and other issues involving customers’ money, Bitstamp hopes to clear the most infuriating delays in the customer support pipeline.
  • Verification: Bitstamp contracted with two automatic verification providers to reduce the amount of manual processing by Bitstamp’s staff.

The changes are a work in progress, but a month after Kodrič’s post Bitstamp was already seeing results. The daily rate of new customer approvals doubled as automated verifications kicked in. Transfers of fiat currencies are now happening in the standard timeframes of 1-2 business days (SEPA in Europe) or 3-5 business days (bank wire transfers).

How to Join Bitstamp

Who can join?

When Bitstamp moved its headquarters to Luxembourg, the company became a fully-regulated payment institution. That integration into the European financial system allowed Bitstamp to offer its services across all twenty-eight EU member states.

Americans living in most states can use the Bitstamp exchange. The most prominent exception is New York, where Bitstamp is caught in bureaucratic limbo.

Bitstamp has applied to the New York State Department of Financial Services for a BitLicense. That would let Bitstamp support customers in New York and make it easier to offer ACH bank transfers rather than the more expensive wire transfers. Unfortunately, the BitLicense process is arduous and slow.

“Applying for the BitLicense is an expensive and difficult process,” Bitstamp USA lawyer George Frost told Coindesk, “Our UK parent company has contributed a lot of time, expertise and money in the BitLicense effort, but much of this investment will benefit the entire Bitstamp group.”

Residents of Wyoming and Hawaii cannot use Bitstamp either. These states require exchanges to hold dollar reserves equal to their residents’ cryptocurrency holdings. That makes serving Hawaii and Wyoming prohibitively expensive.

In a recap of state-level cryptocurrency regulations, Bitcoin Magazine reported that heavy-handed regulation led Bitstamp and other exchanges to exit the state of Washington.

Verification

Individual accounts

In addition to providing personal information, new customers must also provide copies of a government-issued ID and proof of residence in the form of a utility bill, bank statement, or government correspondence.

Bitstamp’s efforts to automate the verification process has helped shorten the time new customers must wait to begin trading, but Bitstamp’s verification team still has to go through manual steps that can extend the wait by days or even weeks.

What You Can Trade

Cryptocurrencies

The digital currencies Bitstamp customers can trade include Bitcoin, XRP, Litecoin, Ether and Bitcoin Cash.

Fiat currencies

The US dollar and the euro are the only fiat currencies supported by Bitstamp. When customers transfer other currencies into their accounts the funds must be converted into one of the supported fiat currencies.

Currency exchanges

Customers can place instant orders to buy digital currencies or cash out their coins for fiat currency.

Advanced trading

The advanced tools Bitstamp provides include limit orders, market orders and stop orders. Bitstamp does not support margin trading.

Bitstamp’s sub-account system lets you isolate your trading in specific currencies or different trading strategies.

Bitstamp offers an API to let advanced users automate their trades. WebSocket and FIX APIs area also available for professional and institutional traders.

Trading Tools and Fees

Trading interface

The Bitstamp interface lets you manage your financial and other account information, activate 2-Factor Authentication, manage sub accounts and submit verification documentation. You can also open and manage your trades from within the main website.

Bitstamp account overview
Source: Bitstamp

Bitstamp’s Tradeview web app gives you at-a-glance time series charts of currency pair prices. You can customize it with a variety of trend analysis tools such as Bollinger Bands and Ichimoku Clouds. You can manage your open orders and place new instant, limit and stop orders right from the Tradeview interface.

Bitstamp Tradeview
Source: Bitstamp

Mobile app support

Bitstamp has mobile apps for iOS and Android. However, the apps only support a limited subset of the full-featured website. You get real-time charts and the ability to place limit orders for bitcoin and other digital currency trades.

Neither app supports the placement of advanced trading options — the apps can’t even see the open trades you’ve made on the website.

Bitstamp app's bad reviews
Source: Apple

As a result of this and other issues, the Bitstamp app’s rating on the App Store is 1.8 stars. The Android app only fares a little better at 2.9 stars.

The apps do get regular attention from Bitstamp’s developers. Bug fixes and optimizations account for many of the updates. The only real feature  updates have added support for XRP and other digital currencies.

New features are coming later this year when the Bitstamp apps get major updates. One already-announced feature will be the ability to submit verification information and supporting materials through the mobile apps.

Deposits and withdrawals

The exponential influx of new bitcoin traders has disrupted every exchange so you’ll see a lot of complaints about the time it takes for the exchanges to process deposits and withdrawals. Bitstamp is no exception.

During normal times, Bitstamp says that bitcoin and other digital currency transfers takes up to one hour. Europeans using SEPA to transfer euros may have to wait three business days. Anyone using bank wire transfers will face typically a five business day wait.

Fiat currencies

Bitstamp lets customers in more than eighty countries purchase bitcoins with credit cards issued by Visa or Mastercard. That includes all twenty-eight EU member states. Residents of Puerto Rico are the only Americans who can purchase bitcoins by card. Bitstamp applies a 5% fee on top of the credit card company’s fees.

Bitstamp customers can make SEPA deposits without incurring a fee. Fees apply to all other international wire transfers, 0.05% for deposits and 0.09% for withdrawals.

Withdrawals to a Bitstamp-issued debit card up to $1,000 incur a $10 fee. Beyond that first grand, you’ll have to pay a 2% fee.

Check out Bitstamp’s fee schedule for more details about withdrawal and deposit fees.

Digital currencies

Almost all digital currency transactions go through without incurring fees from Bitstamp. The sole exception is withdrawing bitcoins with BitGo Instant which incurs a 0.1% processing fee.

Transaction fees

Bitstamp trading fees
Source: Bitstamp

Bitstamp applies a transaction fee based on the dollar value of each customer’s 30-day trading volume. Low-volume customers with fewer than $20,000 in trades get charged 25 basis points while the highest-volume traders generating more than $20,000,000 only get hit with a 10 basis point charge.

Bitstamp lists sixteen other fees that customers could end up paying. Dormant accounts get charged $5 per month. Checking your balance from an ATM will cost you a dollar. You will have to pay Bitstamp $35 to modify or trace a transfer.

Final Word

Bitstamp’s strategy is to become one of the trusted pillar of the new distributed financial system. Its leadership rigorously follows the traditional financial industry’s best practices and chooses to comply with both financial and anti money laundering regulations.

Unfortunately, Bitstamp’s processes have not scaled well in the face of the exponential new account growth of the past year. The exchange is making headway in automating the verification process and reducing transfer delays.

For new traders

If the headlines about hacking and Ponzi schemes give you pause, an exchange like Bitstamp might be the best way to test the cryptocurrency waters. This exchange is building a trusted reputation among traditional financial companies by adopting industry best practices designed to protect customers.

Be sure to review the Bitstamp FAQ first. If that page does not answer all of your questions, then help from Bitstamp could take a while.

For advanced traders

More aggressive traders might chafe at the limited selection of cryptocurrencies Bitstamp offers. With only five of the more than seven hundred coins in circulation, Bitstamp’s focuses on only the most actively-traded digital currencies.

Christopher Casper

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