1. Set up an account, borrow one bitcoin, sell it short, collect $2,700.
2. Set up another account, buy a bitcoin, spend $2,700.
3. When the fork happens, your long account ends up with +1 BTC and +0.8 BCH.
4. Your short account ends up with -1 BTC and -0 BCH (because Bitfinex doesn't require you to come up with the BCH).
5. Net, you have $0, 0 BTC and 0.8 BCH.
6. The 0.8 BCH were worth as much as $560.
7. That money was totally free.
[1] Ninja edit to specify to whom credit is due.
The money wasn't totally free. There was a huge opportunity cost to holding BTC at that time, and even having any in the margin wallet was a huge liability as opposed to funding your margin account with altcoins. Any serious trader knew that alts would rise immediately following the fork and Bitcoin would drop.
And regardless of whether it was free, their terms explicitly stated that those with a BTC balance in their wallets would receive BCH [1]. They did not issue a follow up post clarifying that hedging was strictly not allowed and thus robbed people. After how they handled both this and their hack, I urge/beg people not to use this exchange.
2. Get mad when said organization amends policy so you can't get your free money.
If you're gonna try to profit in the wild west it looks kind of unseemly to get mad when your scheme doesn't go off quite as easily as you had hoped.
2. Thousands of people make trades according to foolish policy
3. Organization changes terms of foolish policy, telling nobody.
4. Organization then waits until after the fact to tell everyone that they have changed the policy, which dictate d the actions of a non trivial percentage of their customers.
If you're going to try to look like a legitimate exchange, this kind of thing looks pretty unseemly.
Oh I agree! The whole thing has bitfinex looking a little foolish. It was step #1 that was the problem though. Steps 3 and 4 were them fixing it as best they could. Those parts weren't mistakes, it's just them keeping you from stealing Bitcoin Cash from their other customers.
Somehow I'm penalized for trying to maximize my profit based on the terms that were stated, even though that's what every single other person on the exchange is doing. Basically they chose to favor those who didn't understand the terms or what was going on in favor of those who did.
The BCH you attempted to acquire for no cost would have come from other customers in the form of that smaller coefficient.
If Bitfinex violated it's own terms with this change, then there might be a case for suing in civil court, but something tells me that Bitfinex covered this with their lawyers before making the change.