We finally know what Bitfinex is actually planning for BFX Coin.

But, let's start from the beginning and discuss what information was obviously missing as soon as the BFX coins were issued.

At the issuance of the BFX coins there was talk about the coins possibly being convertible into equity of Bitfinex. This didn't make any sense from a securities law perspective since many of the BFX coin holders would obviously be U.S. residents and such an issuance of equity convertible tokens would be an obvious securities offering to "unaccredited investors". This is generally illegal under U.S. securities law without the issuance being registered with the SEC or falling under some exemption from registration.

So, what does that term mean? The term "ACCREDITED INVESTOR" is a strictly defined securities law term that applies to high net worth individuals. That definition is found in Rule 501 of the SEC's Regulation D. Basically it boils down to a person who has:

1. a net worth of at least one million US dollars (not counting the value of their primary residence), or
2. an income of at least $200,000 each year for the last two years (or $300,000 combined income if married).

If you want to get really specific, the full text of Rule 501 can be found here: http://www.ecfr.gov/cgibin/retrieveECFRgp=&SID=8edfd12967d69c024485029d968ee737&r=SECTION&n=17y3.0.1.1.12.0.46.176.

Obviously, a huge number of people were trading on Bitfinex who didn't have a million bucks in the bank and weren't making $200k per year. All those people were issued BFX coins. So any issuance to them would be an illegal securities offering as long as the BFX coins were considered "securities". Without getting into the vagaries of the definition of "securities" (something that securities lawyers write long memos on every day), suffice it to say that convertibility into equity would make the coins a "securities". So, this is why the talk about the coins possibly being possibly convertible into equity of Bitfinex didn't make any sense. It would obviously be illegal under U.S. securities law. But, now we know how Bitfinex is planning to hurdle that obstacle.

Philip G. Potter, Bitfinex Chief Strategy Officer recently gave an informal Q&A on the Whale Club Team Speak:

https://soundcloud.com/elux-1/bitfinex-cso-phil-potter-in-fear-and-loathing-raw-unedited

At 43:30, Potter indicates that the plan will be to get ACCREDITED BFX coin holders to convert to equity in Bitfinex in the next three months and to retire the BFX Coins in three to six months. So, that means the run of the mill non-high net worth BFX coin holders (at least those in the U.S.) will NOT be allowed to convert.

At 46:00 he explains that convertibility of the coins was not guaranteed at issuance since that would make the coin issuance a securities issuance under the Securities Act of 1933.

Potter also indicated at some point in the Q&A that Bitfinex might be putting together a "PPM" to get some additional outside money into the company. A "PPM" is a private placement memorandum. This disclosure document is used to privately sell securities in a company to (mainly) accredited investors. Presumably, Bitfinex would use that money to redeem (i.e. buyback) the BFX coins held by non-accredited coin holders.

So, the good news here is that it sounds like Bitfinex is going to sell off equity in the company to pay back the BFX coin holders. This is good for the coin holders since Potter is indicating they are aspiring to do this in three to six months where he feared that paying back the BFX coin holders out of the exchange's operating profits might take 8, 9, or 10 years if they are lucky.

When this interview came out, I was expecting at least a little uptick in the price of the BFX coins. Payback on a 6 month timeline through equity sale certainly makes the BFX coins more valuable than if they are being paid back over a 10 year timeline through exchange profits. But, there was no real uptick in the price.

So, I'm surmising one of the following:

1. people haven't really heard the Q&A,
2. people don't believe Potter is being innocent, or
3. people don't believe Bitfinex can do what Potter is saying they want to do.

In any case, it'll be interesting to see what happens over the next six months.