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Crypto Market Roiled by New Allegations Against Tether, Bitfinex

454 points by seibelj 8y ago

seibelj 8y ago
The article: A cryptocurrency exchange that claims real dollars back its popular digital coin Tether raided those reserves to cover up $850 million that went missing, the New York Attorney General’s office said Thursday. State Attorney General Letitia James said Hong Kong-based iFinex Inc., which operates the Bitfinex cryptocurrency exchange and owns Tether Ltd., has been commingling client and corporate funds to cover up the missing funds, which occurred in mid-2018 and hadn’t been disclosed publicly. The attorney general’s office said it has obtained a court order directing iFinex to stop moving money from Tether’s reserves to Bitfinex’s bank accounts, halt any dividends or other distributions to executives and turn over documents and information. The coverup drained at least $700 million from Tether’s reserves, according to the attorney general’s office. Attorneys for iFinex didn’t immediately respond to a request for comment, and representatives of Bitfinex and Tether weren’t immediately available. The attorney general’s findings emerged from an investigation into cryptocurrency exchanges that it launched in 2018 and is continuing. A report in September warned that many exchanges lacked basic safeguards and left consumers vulnerable to exploitation by market manipulators. A so-called stablecoin, Tether is purportedly backed one-to-one by U.S. dollars. Yet the firm has never released a public audit showing it has the reserves to back the coins in circulation, leading many to question whether the funds exist. Tether has marketed the coin as a way to get both the safety of the dollar and the speed and anonymity of a digital currency. Its market value has risen steadily over the past two years, to $2.8 billion from about $10 million at the beginning of 2017. It has become a major source of liquidity in the cryptocurrency market. About 80% of all bitcoin trading is done in Tether, according to data from research site CryptoCompare. The attorney general said Bitfinex’s problems began in 2018, when it handed over $850 million to third-party payments processor Crypto Capital Corp. to handle customers-withdrawal requests. Over the months that followed, Panama-based Crypto Capital failed to process the orders, the attorney general said. Representatives of Crypto Capital weren’t immediately available for comment. By November of that year, according to people close to the attorney general’s investigation, Bitfinex determined that it had permanently lost access to the $850 million. To hide the missing funds, Bitfinex and Tether engaged in a series of maneuvers that drained Tether’s reserves, the people said. A gap of that size would represent a major portion of Tether’s reserves. Tether currently claims on its website that the coins it issues are backed by reserves that include currency, cash equivalents and other assets and receivables. The language was altered in March; it previously claimed the reserves were 100% in currency.
- cedivad 8y ago
  "Here is most of a billion dollars upfront, that should give you plenty of funds to process my withdraws, looking forward to doing business with you!". Yeah, sure.
- keyle 8y ago
  This reads like 850M just went straight to some entity in Panama. "Missing". Please. Conveniently, in Panama too.
  - nonbel 8y ago
    > "Accord ing to documents prov ided to OAG by Respondents, and based on statements made by counse l fo r Respondents to OAG attorneys. an individual at Crypto Capi tal told the senior Bitfinex executive the reason that funds total ing $851 mil lion cou ld not be returned to Bitfinex was because the funds were seized by governmental authorities in Portugal. Poland. and the Un ited States. Based on statements made by counsel for Respondents to O/\G attorneys. Respondents do not believe Crypto Capital's representations that the funds have been seized." https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=vIexA1b0spKOnK_PLUS_ZUGTJ3A==&system=prod https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet...
  - dragonwriter 8y ago
    > This reads like 850M just went straight to some entity in Panama No, it was around $1bn, $851m is just what Bitfinex lost access to when the entity spun out the “all the money we were holding for you got seized by various governments so we can't handle your payouts” line.
- hinkley 8y ago
  When I was a kid, a comedian, possibly Carlin, lamented that it was "too bad that stupidity didn't hurt". In this age of disruption and the snake oil that seems to go along with it, it appears that is exactly what stupidity does. Hurt. That's some serious bravado and optimism. Why the fuck would you ever move that much money at once? They should not have transferred a penny more than the monthly volume at a time. Was the volume $850 million a month? I seriously doubt it.
berbec 8y ago
Is this a surprise to anyone? I was under the impression that even the most ardent HODL-er thought Tether was, at best, a very risky investment, and more likely a total scam.
- patio11 8y ago
  This is pretty big news; the entire cryptocurrency economy relies on tethers being valued at par, given that they're how billions of dollars of liquidity are denominated. While rumors and suppositions about Tether have swirled for quite some time, that was also true of Mt. Gox before the fall, and those of us who have been saying loudly that they're insolvent have not been widely believed.
  - driverdan 8y ago
    Anyone in the cryptocurrency space with half a brain knew something was up the minute they refused an independent audit. It was only a matter of time before someone brought charges and/or Tether collapsed.
    - raverbashing 8y ago
      Correct, sometimes wishful thinking clobbers rational thought Hence there might be tears
    - Felz 8y ago
      Which does make it rather curious that the music's kept playing, so far. Is "common knowledge" that it's probably a complete fraud (like this filing should give) required to pop the tether bubble? Or will even this not be enough?
      - panarky 8y ago
        People have been yelling that Tether is a ponzi fraud since it launched in 2015. And yet it still trades 1:1 to USD today, after the court filing was released. So is there some magic force that keeps the fraud running, and prevents market participants from cashing out their Tether in the mother of all bank runs? If you hold Tether why wouldn't you sell? Or is there more to the story than just "Tether is an obvious fraud"?
stefan_ 8y ago
Doesn't sound like the $850M went missing, more like someone cashed out. Unless hiring a company to do what you say your company is doing, then handing it all your funds immediately, allows any other conclusion.
- FireBeyond 8y ago
  I'm not sure how you came to this conclusion. Bitfinex sent $850M to allow withdrawals to be paid, but very few, if any, were. Witness communications like "you said this would be resolved, but that was a month ago, and not a single wire transfer has taken place".
bromonkey 8y ago
I'm shocked, absolutely shocked! /s
csomar 8y ago
I think the news was out for some time and only now the rumor started to confirm. Tether is trading at exactly $1/$1 on Kraken. It had touched $0.85/$1 on October 2018 though. It was discounted for the last quarter of the last year. The discount lasted for several months suggesting lack of liquidity and possibly lack of funds. The Tether discount suddenly disappeared. And suddenly a discount/premium appeared on Bitfinex. However, that discount was getting smaller everyday and almost disappeared (until a bit earlier but still negligible in the volatile crypto market). I personally hold a significant amount of USDT/Finex Dollars and not worried. I think the price is more relevant than the news. The probabilities or lack of funds will be builtin in the price. And the current price suggests that iFinex has got its shit together.
- oooshha 8y ago
  It will hold it's peg until it doesn't, and when it doesn't you will take a 50-70% haircut. Just watch.
  - matthewbauer 8y ago
    Tether’s worthless if it’s not worth a dollar. You’ll either get 100% or 0%.
    - oooshha 8y ago
      It's worth the market's perception of what the holders will get after a prolonged bankruptcy process.
      - Scoundreller 8y ago
        The lawyers and accountants get paid out of the leftover assets. If there's practically zero assets left, the process won't even start.
    - rsynnott 8y ago
      You may remember the implosion of mtgox, and people buying mtgox ‘dollars’ at a discount. There’s always a greater fool, apparently.
peterlk 8y ago
It's almost like unregulated financial institutions have a tendency to screw over their customers... No one could have predicted this in the consistently solvent, regulated, and trustworthy cryptocurrency market. It's too bad bitfinex got ripped off by a surely unrelated entity. /s Have we learned our lesson yet?
- mhluongo 8y ago
  > It's almost like unregulated financial institutions have a tendency to screw over their customers... Regulated institutions are great at it too.
- barrkel 8y ago
  Don't you know, the government is no better than a drug dealer, we'd all be better off without them.
  - deleted 8y ago
    [deleted]
- zik 8y ago
  Those guys actually are regulated. The axe falling on them was inevitable, it's just taken a long time.
- MadSudaca 8y ago
  As long as there's value in a 1-to-1 USD-backed crypto, more tethers will created. The barriers of entry are relatively low and someone is bound to get it right eventually.
  - bhaak 8y ago
    There are other, better audited stablecoins now that have been growing for a while now. The trust in tether has always been questionable, this will hopefully accelerate the move away from tether.
  - LandoCalrissian 8y ago
patio11 8y ago
You might enjoy this court order: https://ag.ny.gov/sites/default/files/2019.04.24_signed_order.pdf https://ag.ny.gov/sites/default/files/2019.04.24_signed_orde...
- animex 8y ago
  Doesn't this mean they can't sell/buy/exchange tethers at all!
  - nostrademons 8y ago
    It appears to mean they can't issue new Tethers nor can they raid the Tether reserves, but it doesn't stop trading in Tethers themselves.
    - 6nf 8y ago
      Well they issued some more tethers: https://whale-alert.io/transaction/bitcoin/0c8c22ee5cd69649ff36c0396bb9ce951425614a32129d8d54c0144895ef4e7a https://whale-alert.io/transaction/bitcoin/0c8c22ee5cd69649f... on the same date as this court filing. Did the court filing happen due to the new new Tether minting or was it the other way around? Or just a coincidence?
apo 8y ago
Here's the filing: https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=vIexA1b0spKOnK_PLUS_ZUGTJ3A==&system=prod https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet...
- patio11 8y ago
  This is riveting. I find myself wanting to give you pull quotes but honestly just scroll down, especially to the points where they quote chats that Bitfinex showed them under subpoena.
  - FireBeyond 8y ago
    The only way it could get even more interesting (though probably unlikely) is if the same people behind Bitfinex and Tether (who are indeed the same people - Tether offered a Line of Credit to Tether, and the same two people signed the documents for both sides - wasn't that another of their lies, that they had no relation to each other??), are also behind Crypto Capital?
    - loeg 8y ago
      Wouldn't it be surprising if the same people weren't behind Crypto Capital? Like, if you were going to embezzle your own exchange with vaguely plausible deniability, how would you do it differently from exactly as done here?
      - arcticfox 8y ago
        I'm curious who these Merlin and Oz fellows are, does anyone know more about them?
        Scoundreller 8y ago
        This may be 100% unrelated/wrong: Check out "OZ49 Corporation". It has some shared directors with some other Panama crypto companies, and a director name Oz: https://opencorporates.com/companies/pa/155664811 https://opencorporates.com/companies/pa/155664811
Animats 8y ago
So why hasn't the bottom fallen out of Tether yet?
- Leader2light 8y ago
  Because nothing in crypto makes sense. Think about it. Every single coin is in some way a BS scam. It has no value.
- deleted 8y ago
  [deleted]
- tim333 8y ago
  If they lost $850m they may have $1150m or so left in cash and can use that to support the tether price.
  - dragonwriter 8y ago
    Minor correction: they only raided $700m from Tether reserves, as part of covering the loss of $850m in Bitfinex funds.
  - tlrobinson 8y ago
    So anyone currently holding USDT is playing a ~$1B game of musical chairs?
    - tim333 8y ago
      I imagine there could be something very much like a bank run where people sell there tether for something else till the USD reserves run out then suddenly it goes from 99c to 0.1c. Given the shadiness of the operators they might not even run through all the cash but when half is gone steal the other half and disappear. Or something along those lines.
- nostrademons 8y ago
  Tether functions as sort of the reserve currency of crypto. Many exchanges don't even offer fiat money or banking connections - to use them, you have to send Bitcoin in from another exchange or a personal wallet, then you can convert it into Tether or other altcoins. People who are "getting out of crypto" by selling Bitcoins because they think the price is gonna drop oftentimes are actually buying Tethers. When 80% of crypto trading is denominated in your currency, there isn't really a bottom to fall to. To actually exit Tether, most of these people would have to buy Bitcoins or another cryptocurrency accepted by most exchanges, register for the account verification processes there (every exchange that handles fiat money has the same KYC procedures as banks, i.e. take a picture of yourself and your driver's license and wait a couple days while an employee manually verifies it), transfer your Bitcoin to the other exchange, sell it to USD, and then move it out to a bank account. That takes time and a lot of hassle. We'd expect to see a rise in the price of BTC at USDT-based exchanges as Tether holders need to convert to Bitcoin to get out, along with a fall in BTC at fiat exchanges as they sell that Bitcoin. To some extent this is happening (Coinbase Pro's BTC price is almost $100 less than Tether-only exchanges like Binance or Bitfinex), but it's less severe than I would expect from a true run on the bank. Most Tether holders probably figure they'll take their chances because the hassle of getting out is worse than the possibility of losing their investment. Reserve currencies can go a long time before people finally run for the exits. The US dollar hasn't been backed by anything since 1971 and is still ticking strong.
jpmattia 8y ago
> The attorney general said Bitfinex’s problems began in 2018, when it handed over $850 million to third-party payments processor Crypto Capital Corp. to handle customers-withdrawal requests. Over the months that followed, Panama-based Crypto Capital failed to process the orders, the attorney general said. For all the noise about Tether being insolvent, it turns out that it was completely solvent? Then in 2018, Bitfinex got taken by Crypto Capital and raided the Tether reserves for $850M backing the Tether issuance? So if I'm reading this right: The holders of tether are now screwed and should be converting to bitcoin/litecoin/etc asap.
- chx 8y ago
  > For all the noise about Tether being insolvent, it turns out that it was completely solvent? what makes you think so?
  - jpmattia 8y ago
    1. The primary suspicion about tether was lack of solvency, and the subpoena [edit: from CFTC] went out in late 2017. It would not have taken more than some weeks to determine if the assets were not present. Moreover, the NY AG would have hammered the point in the document if she knew. 2. It's hard to imagine bitfinex draining 100% of the tether reserves and thinking it wouldn't blow up. So I'd hazard a guess that they took only a fraction, with the expectation of replacement before getting caught. (Isn't that the embezzler's cliché?) Since that fraction amounted to $850M, it's probably not a bad guess that they were fully backed or at least pretty close, so that Tether could continue any redemption operations.
    - dragonwriter 8y ago
      > It would not have taken more than some weeks to determine if the assets were not present. The CFTC and DoJ were (and to all appearances still are, the latest news I can find on it is toward the end of 2018) conducting a wide ranging coordinated civil and criminal investigation of Bitfinex/Tether; there's no reason they would publicly release information before being prepared to take action, which wouldn't usually be when they first identify irregularities, but when they've chased down the responsibility and context issues enough to know the full range of charges they expect to file. The idea that the NY AG not saying something about he results of an ongoing federal investigation in a state filing implies that the federal investigation immediately found everything to be just fine even though it continued for at least a year afterward and hasn't visibly ended is...not warranted.
sctb 8y ago
Since the WSJ is hard-paywalled, we've updated the link from https://www.wsj.com/articles/bitfinex-used-tether-reserves-to-mask-missing-850-million-probe-finds-11556227031 https://www.wsj.com/articles/bitfinex-used-tether-reserves-t.... We're happy to update it again if someone can suggest a better source!
- mzs 8y ago
  WSJ isn't hard-paywalled though, just add "?mod=rsswn" to the end of the URL and open in a private window, here try it for yourself: https://www.wsj.com/articles/bitfinex-used-tether-reserves-to-mask-missing-850-million-probe-finds-11556227031?mod=rsswn https://www.wsj.com/articles/bitfinex-used-tether-reserves-t...
ronsor 8y ago
Cryptocurrency exchanges seem to be full of fraud and deception.
- hendzen 8y ago
  Speaking as someone who was deeply interested in bitcoin in ~2013, cryptocurrency today is a wretched hive of scum and villainy. When someone tells me today that they are working on something related to crypto I make a mental note to never work with them or take anything they do seriously.
  - kilroy123 8y ago
    I feel exactly the same way.
  - asenna 8y ago
    This quite an ignorant comment. I've been working with Blockchain tech (Crypto by extension) for a while now and there's a lot of experimenting, genuine projects being built right now. A lot of smart people are in this space building solutions. Major companies like Samsung / Facebook have teams working on PoCs. Unfair to imply that everyone in Crypto is selling snake oil.
    - lalaland1125 8y ago
      > Unfair to imply that everyone in Crypto is selling snake oil. So, who isn't? Look throughout the blockchain ecosystem and all you will see are scams, illegal activity and get rich quick fools. I have personally yet to see a use of blockchain tech for useful legal purposes. Yes, you will see some companies "announce" that they are "investigating" blockchain or whatnot to get some free PR, but you don't ever see them actually release anything useful. (I fully accept that blockchain has revitalized criminal enterprises such as child pornography, extortion, and Ponzi schemes, but I don't see any reason to celebrate that).
      - tim333 8y ago
shiado 8y ago
Anybody who read about the connection between Tether and Bitfinex when the paradise papers came out saw this coming.
impostervt 8y ago
Predictably, the BTC/USDT market (on Binance) is showing an inflated price for BTC as people try and bail out. Elsewhere the price of BTC is falling. It's impossible to tell the real price anymore because, for the moment, both actions are cancelling each other out.
- darawk 8y ago
  Binance has other stablecoin markets. You can see the price just fine there.
- nonbel 8y ago
  Looks like the last shakeout, not a big deal to anyone who didn't trust tether to begin with: >"OAG does not seek lo enjoin or interfere with the orderly operation of Bitfinex or Tether' s legitimate businesses. if any. including orders by legitimate traders on the Bitfinex platform, or legitimate tether holders, to redeem their tethers for dollars. Indeed. protecting legitimate traders using the Bitfinex platform. and legitimate holders of tether. primarily those residing in New York, is why a preliminary injunction is necessary now to preserve the status quo pending the completion of OAG's investigation." https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=vIexA1b0spKOnK_PLUS_ZUGTJ3A==&system=prod https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet...
  - ShorsHammer 8y ago
    > protecting legitimate traders using the Bitfinex platform. and legitimate holders of tether. primarily those residing in New York Bitfinex doesn't accept US customers though?
bravoetch 8y ago
Isn't this the same exchange that got hacked, and socialized the losses throughout their customer accounts? They've been shady on many fronts for a long time.
tim333 8y ago
The other interesting speculation with Bitfinex is they may have used Tether money to manipulate the Bitcoin price. I wonder if we will get more info there.
temp99990 8y ago
And yet tether is still hovering near $1...
- Scoundreller 8y ago
  Any existing peg can be maintained, until it can't.
deleted 8y ago
[deleted]
boxingdog 8y ago
here goes btc again to 3k
nwj 8y ago
From paragraph 60 in the filing (emphasis is mine): "As explained to OAG attorneys by Respondents' counsel. Bitfinex and Tether have also used a number of other third party payment processors to handle client withdrawal requests, including various companies owned by Bitfinex/Tether executives, as well as other 'friends' of Bitfinex - meaning, human being friends of Bitfinex employees that were willing to use their bank accounts to transfer money to Bitfinex clients who had requested withdrawals."
- wmf 8y ago
  This was rumored pretty heavily when Bitfinex said "Divulging [bank account] info could damage not just yourself and Bitfinex but the entire digital token ecosystem … you are cautioned that there may be serious negative effects with this information becoming public." LOL https://news.bitcoin.com/bitfinex-introduces-top-secret-banking-system/ https://news.bitcoin.com/bitfinex-introduces-top-secret-bank...
  - nonbel 8y ago
    > "The New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million “loss” at Crypto Capital. On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded. We are and have been actively working to exercise our rights and remedies and get those funds released. Sadly, the New York Attorney General’s office seems to be intent on undermining those efforts to the detriment of our customers." https://www.bitfinex.com/posts/356 https://www.bitfinex.com/posts/356
    - xmly 8y ago
      So they admit that the money was once lost, just they recovered part of it? Of course, they forgot to disclose.
      - nonbel 8y ago
        No. They claim the money was seized from a "partner" (Crypto Capital) by various governments (~$400 million to Poland, etc), and they are trying to get it back.
ShorsHammer 8y ago
Everyone agree's that tether should have a 1-to-1 backing. The delicious irony in it all is that the money in your bank is backed by about $0.10 for every dollar they owe savers. I hope for the day when people expect the same of the banking system that underpins the whole economy.
- nlh 8y ago
  There's a huge difference: Yes, the bank only holds $0.10 in cash, but at least in the US, the F.D.I.C. backs up every dollar in your bank account up to $250,000. That's a major reason the reserve banking system functions. If there were an F.D.I.C. for tether then I'm sure people would have different expectations (and likewise, if there were no F.D.I.C. for the US banking system).
  - nonbel 8y ago
    The FDIC is more a feel-good measure: >"Currently, the Deposit Insurance Fund (DIF), which is a fund set aside to cover the insurance obligations of the FDIC, has a required reserve ratio of only 1.35%. And that is only after a decision was made in October of 2015 to raise it, from its original level of 1.15%. Even more daunting, the DIF has until 2020 to reach this new 1.35% required reserve level. This means that, using the newly designated 1.35%, the DIF is only required by law to have $3375 on hand for every $250,000 it is currently insuring. Feeling secure? And, sadly, the reality is even less reassuring. On a macro scale, the FDIC currently “insures” $10.8 trillion of deposits, yet the DIF only has $52 billion of actual cash with which to insure that massive amount of money. Quite a massive shortfall, and well below the measly 1.35% that it is required by law to maintain." http://www.escapeartist.com/assetprotection/what-does-fdic-insured-really-mean/ http://www.escapeartist.com/assetprotection/what-does-fdic-i... In the end the fed can print the dollars too, at the expense of inflation... but who knows what schemes they have come up with.
    - lenticular 8y ago
      The government is able to issue debt.
arcticfox 8y ago
I wonder if this is somehow related, 550 BTC (~$3M USD) connected to 2016 Bitfinex hack were moved today: https://www.reddit.com/r/Bitcoin/comments/bha10i/bitcoins_from_the_bitfinex_hack_2016_moved_today/ https://www.reddit.com/r/Bitcoin/comments/bha10i/bitcoins_fr...
- danaos 8y ago
  This is only a small fraction of the 120k bitcoins stolen at the time though. It may be a coincidence.
  - village-idiot 8y ago
    Allegedly stolen.
    - stzup7 8y ago
      ? The FBI collaborates on the investigation and even returned them some funds they were able to seize a few months ago.
      - village-idiot 8y ago
        It’s a crypto exchange. The bar for it actually being stolen by a third party is high. Usually it’s just an exit scam, or they gambled with customer money.
blake1 8y ago
This seemed inevitable for a long time. Tether is very important for maintaining the price of bitcoin, and yet the stablecoin’s financial condition has been an unanswered question. The company has raised every red flag and in a rational market, tether would have been priced at pennies in the dollar, with a corresponding markdown for bitcoin with the loss of “convertibility” to dollars. And I honestly am surprised how pedestrian the fraud was. It sounds like they had the cash to back tether and just flat out stole it to cover for a trading loss. This has happened countless times before.
- darawk 8y ago
  > And I honestly am surprised how pedestrian the fraud was. It sounds like they had the cash to back tether and just flat out stole it to cover for a trading loss. This has happened countless times before. Where do you see anything like that? The report says that their funds were frozen by Crypto Capital as the result of (claimed) seizure by governments. The funds were borrowed from the Tether reserves to cover that shortfall. AFAIK, nowhere does it state that there was any trading loss.
- arisAlexis 8y ago
  > Tether is very important for maintaining the price of bitcoin not convinced about that. there are some reports for and some against the argument but nothing proven
village-idiot 8y ago
About time. Bitfinex has been suspected of serious fraud for at least a year.
Uptrenda 8y ago
That Buttfinex is a sinking ship is practically written on the wall in blood. If people keep sending irrevocable (and often untraceable) cryto-assets to these dubious third-parties then they deserve to be robbed, IMO. It's delicious irony given that Bitcoin was created as a solution to third-party trust. So the people who are using all these services really don't know a thing about what they're trading. To them its just some warped techo-nerd 'coin' to speculate on. I have no sympathy for that. Maybe these traders will be spoon fed a lesson on what it is they're trading after their shitty exchanges burn them for the twelfth time. Before anyone mentions decentralized exchange as a solution, you'll find the same incompetent people behind those projects, too. We're talking people who don' understand how an order book works and abuse distributed system architectures for marketing reasons. DEX has even more problems than just security so it's not going to be a solution any time soon. Kind of sad how nothing has changed since the first exchange went down six frigging years ago. Mark Karpelès was practically a genius compared to the CTOs designing some of these shitcoin on-ramps.
h1d 8y ago
The usual blog when it comes to Bitfinex. https://medium.com/@bitfinexed https://medium.com/@bitfinexed
- kbody 8y ago
  Alex Jones too... The majority of this blog is just conspiracy-p0rn. Anyway, if you are really interested in actual related news and facts just follow https://www.theblockcrypto.com https://www.theblockcrypto.com or similar.
miguelmota 8y ago
Tether was questionable since day one. They never really substantiated their claim of full-backing through a real audit of their currency reserves. Tether was the successor to Realcoin which was backed by Brock Pierce. Brock Pierce is co-founder of EOS which had the 4 billion dollar ICO.
shrimpx 8y ago
Next crypto bubble: people mass-bailing out tether by exchanging it for Bitcoin, Litecoin, etc.
- gzu 8y ago
  Yes people exchanging their worthless asset (tether) for bitcoin so they can sell it for real USD. BTC-USDT -> infinity BTC-USD -> much lower
aedron 8y ago
This article goes to great alarmist lengths, past the point of being deceiving. Just the very first line: > One of the world’s most widely traded virtual currencies faces renewed doubts about its stability [...] Tether is nothing in terms of crypto currency penetration. It does not even have a percent of daily trading. Then a few paragraphs down: > [...] within an hour of the attorney general’s statement and Tether slid 1.4 percent. 1.4 per cent. Even big cap stocks fluctuate that much some days. > At the time of the correspondence, Bitcoin was trading at around $6,500. It dropped 4.7 percent to $5,236.03 at 12:10 p.m. in Hong Kong on Friday. So they mention a price from 8 months ago, and then mention yesterday's price, implying that it fell that much because of this event. Garbage journalism.
- ccjnsn 8y ago
  For something pegged 1:1 with the US dollar a 1.4% decrease is quite unusual. It's volume is 2nd only to Bitcoin per [1]coinmarketcap. With your 3rd point about pricing changes, yeah correlation/causation, it's a theory that is plausible though. 1.coinmarketcap.com
  - GreaterFool 8y ago
    If the peg was actually backed by anything then yes, that'd be unusual.
    - askmike 8y ago
      Not really no, it depends on how much liquidity of a certain type is worth compared to liquidity of another type. Given the volatility in crypto markets this tends to change drastically in different times. Same as why lending rates for crypto & fiat can go from 0.0001% to 0.08% (per day for example) in a matter of hours based on certain sudden price action.
  - carrja99 8y ago
    You would think, but not for tether. I've seen it sit comfortably at 98-99% and even once dip as low as 89%.
55555 8y ago
So, let me get this straight... Crypto Capital has claimed that the money is frozen and that's why they can't send it back. Execs at Bitfinex/Tether believe maybe Crypto Capital's principal, Ivan Lee, has stolen it and that's why he won't send it back. The NY AG contacted Portugese and Polish authorities and, from them, was informed that there were no official orders freezing Crypto Capital bank accounts in those countries. So the most likely scenario by far is that Ivan Lee has stolen the money. The NY AG then files a civil lawsuit against Bitfinex, and in doing so reveals to Ivan Lee that the US government is aware that he has stolen the money. But he (Ivan) has not yet been arrested. So now we have a guy who has committed a massive crime and who is comfortable with tax havens and living internationally and corrupting institutions and who has been given a fair warning to go into hiding before he inevitably is indicted. Oh, and he has $850,000,000. Doesn't he sound like, idk, a flight risk? If he flees, regardless of iFinex's failure to disclose the suspected loss to investors, gross negligance on behalf of the NY AG may contribute to investors losing $850 MM. Why wouldn't they criminally charge the guy who they strongly imply has actually stolen the money first before they file a civil suit against the victims* dumb enough to send it to him? (* This is called VAF - Victim Assisted Fraud) There's a lot of angles from which to look at this. Bitfinex/Tether are shady, no doubt. But if the NY AG actually believes what they are purporting to, this stands out to me as a bizarre choice.
- stzup7 8y ago
  "The NY AG contacted Portugese and Polish authorities and, from them, was informed that there were no official orders freezing Crypto Capital bank accounts in those countries" I've read the 24 pages report and missed that part, could you quote it please? To me, the whole thing looks like this: "Hey Bitfinex, you can't keep running your operations when you're missing 800M. We know that, because we're the one who seized that money from you"
  - 55555 8y ago
    Oops, I misread page 15 and confused the Respondents for the OAG. I was skimming. My bad. > To me, the whole thing looks like this: "Hey Bitfinex, you can't keep running your operations when you're missing 800M. We know that, because we're the one who seized that money from you" This sounds right. Pretty interesting stuff
arisAlexis 8y ago
which shouldn't in principle affect Bitcoin which is decentralized and trustless if some third party private companies fail.

454 points by seibelj 8y ago

The article: A cryptocurrency exchange that claims real dollars back its popular digital coin Tether raided those reserves to cover up $850 million that went missing, the New York Attorney General’s office said Thursday. State Attorney General Letitia James said Hong Kong-based iFinex Inc., which operates the Bitfinex cryptocurrency exchange and owns Tether Ltd., has been commingling client and corporate funds to cover up the missing funds, which occurred in mid-2018 and hadn’t been disclosed publicly. The attorney general’s office said it has obtained a court order directing iFinex to stop moving money from Tether’s reserves to Bitfinex’s bank accounts, halt any dividends or other distributions to executives and turn over documents and information. The coverup drained at least $700 million from Tether’s reserves, according to the attorney general’s office. Attorneys for iFinex didn’t immediately respond to a request for comment, and representatives of Bitfinex and Tether weren’t immediately available. The attorney general’s findings emerged from an investigation into cryptocurrency exchanges that it launched in 2018 and is continuing. A report in September warned that many exchanges lacked basic safeguards and left consumers vulnerable to exploitation by market manipulators. A so-called stablecoin, Tether is purportedly backed one-to-one by U.S. dollars. Yet the firm has never released a public audit showing it has the reserves to back the coins in circulation, leading many to question whether the funds exist. Tether has marketed the coin as a way to get both the safety of the dollar and the speed and anonymity of a digital currency. Its market value has risen steadily over the past two years, to $2.8 billion from about $10 million at the beginning of 2017. It has become a major source of liquidity in the cryptocurrency market. About 80% of all bitcoin trading is done in Tether, according to data from research site CryptoCompare. The attorney general said Bitfinex’s problems began in 2018, when it handed over $850 million to third-party payments processor Crypto Capital Corp. to handle customers-withdrawal requests. Over the months that followed, Panama-based Crypto Capital failed to process the orders, the attorney general said. Representatives of Crypto Capital weren’t immediately available for comment. By November of that year, according to people close to the attorney general’s investigation, Bitfinex determined that it had permanently lost access to the $850 million. To hide the missing funds, Bitfinex and Tether engaged in a series of maneuvers that drained Tether’s reserves, the people said. A gap of that size would represent a major portion of Tether’s reserves. Tether currently claims on its website that the coins it issues are backed by reserves that include currency, cash equivalents and other assets and receivables. The language was altered in March; it previously claimed the reserves were 100% in currency.

cedivad 8y ago
"Here is most of a billion dollars upfront, that should give you plenty of funds to process my withdraws, looking forward to doing business with you!". Yeah, sure.
keyle 8y ago
This reads like 850M just went straight to some entity in Panama. "Missing". Please. Conveniently, in Panama too.
- nonbel 8y ago
  > "Accord ing to documents prov ided to OAG by Respondents, and based on statements made by counse l fo r Respondents to OAG attorneys. an individual at Crypto Capi tal told the senior Bitfinex executive the reason that funds total ing $851 mil lion cou ld not be returned to Bitfinex was because the funds were seized by governmental authorities in Portugal. Poland. and the Un ited States. Based on statements made by counsel for Respondents to O/\G attorneys. Respondents do not believe Crypto Capital's representations that the funds have been seized." https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=vIexA1b0spKOnK_PLUS_ZUGTJ3A==&system=prod https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet...
- dragonwriter 8y ago
  > This reads like 850M just went straight to some entity in Panama No, it was around $1bn, $851m is just what Bitfinex lost access to when the entity spun out the “all the money we were holding for you got seized by various governments so we can't handle your payouts” line.
hinkley 8y ago
When I was a kid, a comedian, possibly Carlin, lamented that it was "too bad that stupidity didn't hurt". In this age of disruption and the snake oil that seems to go along with it, it appears that is exactly what stupidity does. Hurt. That's some serious bravado and optimism. Why the fuck would you ever move that much money at once? They should not have transferred a penny more than the monthly volume at a time. Was the volume $850 million a month? I seriously doubt it.

berbec 8y ago

Is this a surprise to anyone? I was under the impression that even the most ardent HODL-er thought Tether was, at best, a very risky investment, and more likely a total scam.

patio11 8y ago
This is pretty big news; the entire cryptocurrency economy relies on tethers being valued at par, given that they're how billions of dollars of liquidity are denominated. While rumors and suppositions about Tether have swirled for quite some time, that was also true of Mt. Gox before the fall, and those of us who have been saying loudly that they're insolvent have not been widely believed.
- driverdan 8y ago
  Anyone in the cryptocurrency space with half a brain knew something was up the minute they refused an independent audit. It was only a matter of time before someone brought charges and/or Tether collapsed.
  - raverbashing 8y ago
    Correct, sometimes wishful thinking clobbers rational thought Hence there might be tears
  - Felz 8y ago
    Which does make it rather curious that the music's kept playing, so far. Is "common knowledge" that it's probably a complete fraud (like this filing should give) required to pop the tether bubble? Or will even this not be enough?
    - panarky 8y ago
      People have been yelling that Tether is a ponzi fraud since it launched in 2015. And yet it still trades 1:1 to USD today, after the court filing was released. So is there some magic force that keeps the fraud running, and prevents market participants from cashing out their Tether in the mother of all bank runs? If you hold Tether why wouldn't you sell? Or is there more to the story than just "Tether is an obvious fraud"?

stefan_ 8y ago

Doesn't sound like the $850M went missing, more like someone cashed out. Unless hiring a company to do what you say your company is doing, then handing it all your funds immediately, allows any other conclusion.

FireBeyond 8y ago
I'm not sure how you came to this conclusion. Bitfinex sent $850M to allow withdrawals to be paid, but very few, if any, were. Witness communications like "you said this would be resolved, but that was a month ago, and not a single wire transfer has taken place".

bromonkey 8y ago

I'm shocked, absolutely shocked! /s

csomar 8y ago

I think the news was out for some time and only now the rumor started to confirm. Tether is trading at exactly $1/$1 on Kraken. It had touched $0.85/$1 on October 2018 though. It was discounted for the last quarter of the last year. The discount lasted for several months suggesting lack of liquidity and possibly lack of funds. The Tether discount suddenly disappeared. And suddenly a discount/premium appeared on Bitfinex. However, that discount was getting smaller everyday and almost disappeared (until a bit earlier but still negligible in the volatile crypto market). I personally hold a significant amount of USDT/Finex Dollars and not worried. I think the price is more relevant than the news. The probabilities or lack of funds will be builtin in the price. And the current price suggests that iFinex has got its shit together.

oooshha 8y ago
It will hold it's peg until it doesn't, and when it doesn't you will take a 50-70% haircut. Just watch.
- matthewbauer 8y ago
  Tether’s worthless if it’s not worth a dollar. You’ll either get 100% or 0%.
  - oooshha 8y ago
    It's worth the market's perception of what the holders will get after a prolonged bankruptcy process.
    - Scoundreller 8y ago
      The lawyers and accountants get paid out of the leftover assets. If there's practically zero assets left, the process won't even start.
  - rsynnott 8y ago
    You may remember the implosion of mtgox, and people buying mtgox ‘dollars’ at a discount. There’s always a greater fool, apparently.

peterlk 8y ago

It's almost like unregulated financial institutions have a tendency to screw over their customers... No one could have predicted this in the consistently solvent, regulated, and trustworthy cryptocurrency market. It's too bad bitfinex got ripped off by a surely unrelated entity. /s Have we learned our lesson yet?

mhluongo 8y ago
> It's almost like unregulated financial institutions have a tendency to screw over their customers... Regulated institutions are great at it too.
barrkel 8y ago
Don't you know, the government is no better than a drug dealer, we'd all be better off without them.
- deleted 8y ago
  [deleted]
zik 8y ago
Those guys actually are regulated. The axe falling on them was inevitable, it's just taken a long time.
MadSudaca 8y ago
As long as there's value in a 1-to-1 USD-backed crypto, more tethers will created. The barriers of entry are relatively low and someone is bound to get it right eventually.
- bhaak 8y ago
  There are other, better audited stablecoins now that have been growing for a while now. The trust in tether has always been questionable, this will hopefully accelerate the move away from tether.
- LandoCalrissian 8y ago

patio11 8y ago

You might enjoy this court order: https://ag.ny.gov/sites/default/files/2019.04.24_signed_order.pdf https://ag.ny.gov/sites/default/files/2019.04.24_signed_orde...

animex 8y ago
Doesn't this mean they can't sell/buy/exchange tethers at all!
- nostrademons 8y ago
  It appears to mean they can't issue new Tethers nor can they raid the Tether reserves, but it doesn't stop trading in Tethers themselves.
  - 6nf 8y ago
    Well they issued some more tethers: https://whale-alert.io/transaction/bitcoin/0c8c22ee5cd69649ff36c0396bb9ce951425614a32129d8d54c0144895ef4e7a https://whale-alert.io/transaction/bitcoin/0c8c22ee5cd69649f... on the same date as this court filing. Did the court filing happen due to the new new Tether minting or was it the other way around? Or just a coincidence?

apo 8y ago

Here's the filing: https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=vIexA1b0spKOnK_PLUS_ZUGTJ3A==&system=prod https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet...

patio11 8y ago
This is riveting. I find myself wanting to give you pull quotes but honestly just scroll down, especially to the points where they quote chats that Bitfinex showed them under subpoena.
- FireBeyond 8y ago
  The only way it could get even more interesting (though probably unlikely) is if the same people behind Bitfinex and Tether (who are indeed the same people - Tether offered a Line of Credit to Tether, and the same two people signed the documents for both sides - wasn't that another of their lies, that they had no relation to each other??), are also behind Crypto Capital?
  - loeg 8y ago
    Wouldn't it be surprising if the same people weren't behind Crypto Capital? Like, if you were going to embezzle your own exchange with vaguely plausible deniability, how would you do it differently from exactly as done here?
    - arcticfox 8y ago
      I'm curious who these Merlin and Oz fellows are, does anyone know more about them?
      - Scoundreller 8y ago
        This may be 100% unrelated/wrong: Check out "OZ49 Corporation". It has some shared directors with some other Panama crypto companies, and a director name Oz: https://opencorporates.com/companies/pa/155664811 https://opencorporates.com/companies/pa/155664811

Animats 8y ago

So why hasn't the bottom fallen out of Tether yet?

Leader2light 8y ago
Because nothing in crypto makes sense. Think about it. Every single coin is in some way a BS scam. It has no value.
deleted 8y ago
[deleted]
tim333 8y ago
If they lost $850m they may have $1150m or so left in cash and can use that to support the tether price.
- dragonwriter 8y ago
  Minor correction: they only raided $700m from Tether reserves, as part of covering the loss of $850m in Bitfinex funds.
- tlrobinson 8y ago
  So anyone currently holding USDT is playing a ~$1B game of musical chairs?
  - tim333 8y ago
    I imagine there could be something very much like a bank run where people sell there tether for something else till the USD reserves run out then suddenly it goes from 99c to 0.1c. Given the shadiness of the operators they might not even run through all the cash but when half is gone steal the other half and disappear. Or something along those lines.
nostrademons 8y ago
Tether functions as sort of the reserve currency of crypto. Many exchanges don't even offer fiat money or banking connections - to use them, you have to send Bitcoin in from another exchange or a personal wallet, then you can convert it into Tether or other altcoins. People who are "getting out of crypto" by selling Bitcoins because they think the price is gonna drop oftentimes are actually buying Tethers. When 80% of crypto trading is denominated in your currency, there isn't really a bottom to fall to. To actually exit Tether, most of these people would have to buy Bitcoins or another cryptocurrency accepted by most exchanges, register for the account verification processes there (every exchange that handles fiat money has the same KYC procedures as banks, i.e. take a picture of yourself and your driver's license and wait a couple days while an employee manually verifies it), transfer your Bitcoin to the other exchange, sell it to USD, and then move it out to a bank account. That takes time and a lot of hassle. We'd expect to see a rise in the price of BTC at USDT-based exchanges as Tether holders need to convert to Bitcoin to get out, along with a fall in BTC at fiat exchanges as they sell that Bitcoin. To some extent this is happening (Coinbase Pro's BTC price is almost $100 less than Tether-only exchanges like Binance or Bitfinex), but it's less severe than I would expect from a true run on the bank. Most Tether holders probably figure they'll take their chances because the hassle of getting out is worse than the possibility of losing their investment. Reserve currencies can go a long time before people finally run for the exits. The US dollar hasn't been backed by anything since 1971 and is still ticking strong.

jpmattia 8y ago

> The attorney general said Bitfinex’s problems began in 2018, when it handed over $850 million to third-party payments processor Crypto Capital Corp. to handle customers-withdrawal requests. Over the months that followed, Panama-based Crypto Capital failed to process the orders, the attorney general said. For all the noise about Tether being insolvent, it turns out that it was completely solvent? Then in 2018, Bitfinex got taken by Crypto Capital and raided the Tether reserves for $850M backing the Tether issuance? So if I'm reading this right: The holders of tether are now screwed and should be converting to bitcoin/litecoin/etc asap.

chx 8y ago
> For all the noise about Tether being insolvent, it turns out that it was completely solvent? what makes you think so?
- jpmattia 8y ago
  1. The primary suspicion about tether was lack of solvency, and the subpoena [edit: from CFTC] went out in late 2017. It would not have taken more than some weeks to determine if the assets were not present. Moreover, the NY AG would have hammered the point in the document if she knew. 2. It's hard to imagine bitfinex draining 100% of the tether reserves and thinking it wouldn't blow up. So I'd hazard a guess that they took only a fraction, with the expectation of replacement before getting caught. (Isn't that the embezzler's cliché?) Since that fraction amounted to $850M, it's probably not a bad guess that they were fully backed or at least pretty close, so that Tether could continue any redemption operations.
  - dragonwriter 8y ago
    > It would not have taken more than some weeks to determine if the assets were not present. The CFTC and DoJ were (and to all appearances still are, the latest news I can find on it is toward the end of 2018) conducting a wide ranging coordinated civil and criminal investigation of Bitfinex/Tether; there's no reason they would publicly release information before being prepared to take action, which wouldn't usually be when they first identify irregularities, but when they've chased down the responsibility and context issues enough to know the full range of charges they expect to file. The idea that the NY AG not saying something about he results of an ongoing federal investigation in a state filing implies that the federal investigation immediately found everything to be just fine even though it continued for at least a year afterward and hasn't visibly ended is...not warranted.

sctb 8y ago

Since the WSJ is hard-paywalled, we've updated the link from https://www.wsj.com/articles/bitfinex-used-tether-reserves-to-mask-missing-850-million-probe-finds-11556227031 https://www.wsj.com/articles/bitfinex-used-tether-reserves-t.... We're happy to update it again if someone can suggest a better source!

mzs 8y ago
WSJ isn't hard-paywalled though, just add "?mod=rsswn" to the end of the URL and open in a private window, here try it for yourself: https://www.wsj.com/articles/bitfinex-used-tether-reserves-to-mask-missing-850-million-probe-finds-11556227031?mod=rsswn https://www.wsj.com/articles/bitfinex-used-tether-reserves-t...

ronsor 8y ago

Cryptocurrency exchanges seem to be full of fraud and deception.

hendzen 8y ago
Speaking as someone who was deeply interested in bitcoin in ~2013, cryptocurrency today is a wretched hive of scum and villainy. When someone tells me today that they are working on something related to crypto I make a mental note to never work with them or take anything they do seriously.
- kilroy123 8y ago
  I feel exactly the same way.
- asenna 8y ago
  This quite an ignorant comment. I've been working with Blockchain tech (Crypto by extension) for a while now and there's a lot of experimenting, genuine projects being built right now. A lot of smart people are in this space building solutions. Major companies like Samsung / Facebook have teams working on PoCs. Unfair to imply that everyone in Crypto is selling snake oil.
  - lalaland1125 8y ago
    > Unfair to imply that everyone in Crypto is selling snake oil. So, who isn't? Look throughout the blockchain ecosystem and all you will see are scams, illegal activity and get rich quick fools. I have personally yet to see a use of blockchain tech for useful legal purposes. Yes, you will see some companies "announce" that they are "investigating" blockchain or whatnot to get some free PR, but you don't ever see them actually release anything useful. (I fully accept that blockchain has revitalized criminal enterprises such as child pornography, extortion, and Ponzi schemes, but I don't see any reason to celebrate that).
    - tim333 8y ago

shiado 8y ago

Anybody who read about the connection between Tether and Bitfinex when the paradise papers came out saw this coming.

impostervt 8y ago

Predictably, the BTC/USDT market (on Binance) is showing an inflated price for BTC as people try and bail out. Elsewhere the price of BTC is falling. It's impossible to tell the real price anymore because, for the moment, both actions are cancelling each other out.

darawk 8y ago
Binance has other stablecoin markets. You can see the price just fine there.
nonbel 8y ago
Looks like the last shakeout, not a big deal to anyone who didn't trust tether to begin with: >"OAG does not seek lo enjoin or interfere with the orderly operation of Bitfinex or Tether' s legitimate businesses. if any. including orders by legitimate traders on the Bitfinex platform, or legitimate tether holders, to redeem their tethers for dollars. Indeed. protecting legitimate traders using the Bitfinex platform. and legitimate holders of tether. primarily those residing in New York, is why a preliminary injunction is necessary now to preserve the status quo pending the completion of OAG's investigation." https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=vIexA1b0spKOnK_PLUS_ZUGTJ3A==&system=prod https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet...
- ShorsHammer 8y ago
  > protecting legitimate traders using the Bitfinex platform. and legitimate holders of tether. primarily those residing in New York Bitfinex doesn't accept US customers though?

bravoetch 8y ago

Isn't this the same exchange that got hacked, and socialized the losses throughout their customer accounts? They've been shady on many fronts for a long time.

tim333 8y ago

The other interesting speculation with Bitfinex is they may have used Tether money to manipulate the Bitcoin price. I wonder if we will get more info there.

temp99990 8y ago

And yet tether is still hovering near $1...

Scoundreller 8y ago
Any existing peg can be maintained, until it can't.

deleted 8y ago

[deleted]

boxingdog 8y ago

here goes btc again to 3k

nwj 8y ago

From paragraph 60 in the filing (emphasis is mine): "As explained to OAG attorneys by Respondents' counsel. Bitfinex and Tether have also used a number of other third party payment processors to handle client withdrawal requests, including various companies owned by Bitfinex/Tether executives, as well as other 'friends' of Bitfinex - meaning, human being friends of Bitfinex employees that were willing to use their bank accounts to transfer money to Bitfinex clients who had requested withdrawals."

wmf 8y ago
This was rumored pretty heavily when Bitfinex said "Divulging [bank account] info could damage not just yourself and Bitfinex but the entire digital token ecosystem … you are cautioned that there may be serious negative effects with this information becoming public." LOL https://news.bitcoin.com/bitfinex-introduces-top-secret-banking-system/ https://news.bitcoin.com/bitfinex-introduces-top-secret-bank...
- nonbel 8y ago
  > "The New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million “loss” at Crypto Capital. On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded. We are and have been actively working to exercise our rights and remedies and get those funds released. Sadly, the New York Attorney General’s office seems to be intent on undermining those efforts to the detriment of our customers." https://www.bitfinex.com/posts/356 https://www.bitfinex.com/posts/356
  - xmly 8y ago
    So they admit that the money was once lost, just they recovered part of it? Of course, they forgot to disclose.
    - nonbel 8y ago
      No. They claim the money was seized from a "partner" (Crypto Capital) by various governments (~$400 million to Poland, etc), and they are trying to get it back.

ShorsHammer 8y ago

Everyone agree's that tether should have a 1-to-1 backing. The delicious irony in it all is that the money in your bank is backed by about $0.10 for every dollar they owe savers. I hope for the day when people expect the same of the banking system that underpins the whole economy.

nlh 8y ago
There's a huge difference: Yes, the bank only holds $0.10 in cash, but at least in the US, the F.D.I.C. backs up every dollar in your bank account up to $250,000. That's a major reason the reserve banking system functions. If there were an F.D.I.C. for tether then I'm sure people would have different expectations (and likewise, if there were no F.D.I.C. for the US banking system).
- nonbel 8y ago
  The FDIC is more a feel-good measure: >"Currently, the Deposit Insurance Fund (DIF), which is a fund set aside to cover the insurance obligations of the FDIC, has a required reserve ratio of only 1.35%. And that is only after a decision was made in October of 2015 to raise it, from its original level of 1.15%. Even more daunting, the DIF has until 2020 to reach this new 1.35% required reserve level. This means that, using the newly designated 1.35%, the DIF is only required by law to have $3375 on hand for every $250,000 it is currently insuring. Feeling secure? And, sadly, the reality is even less reassuring. On a macro scale, the FDIC currently “insures” $10.8 trillion of deposits, yet the DIF only has $52 billion of actual cash with which to insure that massive amount of money. Quite a massive shortfall, and well below the measly 1.35% that it is required by law to maintain." http://www.escapeartist.com/assetprotection/what-does-fdic-insured-really-mean/ http://www.escapeartist.com/assetprotection/what-does-fdic-i... In the end the fed can print the dollars too, at the expense of inflation... but who knows what schemes they have come up with.
  - lenticular 8y ago
    The government is able to issue debt.

arcticfox 8y ago

I wonder if this is somehow related, 550 BTC (~$3M USD) connected to 2016 Bitfinex hack were moved today: https://www.reddit.com/r/Bitcoin/comments/bha10i/bitcoins_from_the_bitfinex_hack_2016_moved_today/ https://www.reddit.com/r/Bitcoin/comments/bha10i/bitcoins_fr...

danaos 8y ago
This is only a small fraction of the 120k bitcoins stolen at the time though. It may be a coincidence.
- village-idiot 8y ago
  Allegedly stolen.
  - stzup7 8y ago
    ? The FBI collaborates on the investigation and even returned them some funds they were able to seize a few months ago.
    - village-idiot 8y ago
      It’s a crypto exchange. The bar for it actually being stolen by a third party is high. Usually it’s just an exit scam, or they gambled with customer money.

blake1 8y ago

This seemed inevitable for a long time. Tether is very important for maintaining the price of bitcoin, and yet the stablecoin’s financial condition has been an unanswered question. The company has raised every red flag and in a rational market, tether would have been priced at pennies in the dollar, with a corresponding markdown for bitcoin with the loss of “convertibility” to dollars. And I honestly am surprised how pedestrian the fraud was. It sounds like they had the cash to back tether and just flat out stole it to cover for a trading loss. This has happened countless times before.

darawk 8y ago
> And I honestly am surprised how pedestrian the fraud was. It sounds like they had the cash to back tether and just flat out stole it to cover for a trading loss. This has happened countless times before. Where do you see anything like that? The report says that their funds were frozen by Crypto Capital as the result of (claimed) seizure by governments. The funds were borrowed from the Tether reserves to cover that shortfall. AFAIK, nowhere does it state that there was any trading loss.
arisAlexis 8y ago
> Tether is very important for maintaining the price of bitcoin not convinced about that. there are some reports for and some against the argument but nothing proven

village-idiot 8y ago

About time. Bitfinex has been suspected of serious fraud for at least a year.

Uptrenda 8y ago

That Buttfinex is a sinking ship is practically written on the wall in blood. If people keep sending irrevocable (and often untraceable) cryto-assets to these dubious third-parties then they deserve to be robbed, IMO. It's delicious irony given that Bitcoin was created as a solution to third-party trust. So the people who are using all these services really don't know a thing about what they're trading. To them its just some warped techo-nerd 'coin' to speculate on. I have no sympathy for that. Maybe these traders will be spoon fed a lesson on what it is they're trading after their shitty exchanges burn them for the twelfth time. Before anyone mentions decentralized exchange as a solution, you'll find the same incompetent people behind those projects, too. We're talking people who don' understand how an order book works and abuse distributed system architectures for marketing reasons. DEX has even more problems than just security so it's not going to be a solution any time soon. Kind of sad how nothing has changed since the first exchange went down six frigging years ago. Mark Karpelès was practically a genius compared to the CTOs designing some of these shitcoin on-ramps.

h1d 8y ago

The usual blog when it comes to Bitfinex. https://medium.com/@bitfinexed https://medium.com/@bitfinexed

kbody 8y ago
Alex Jones too... The majority of this blog is just conspiracy-p0rn. Anyway, if you are really interested in actual related news and facts just follow https://www.theblockcrypto.com https://www.theblockcrypto.com or similar.

miguelmota 8y ago

Tether was questionable since day one. They never really substantiated their claim of full-backing through a real audit of their currency reserves. Tether was the successor to Realcoin which was backed by Brock Pierce. Brock Pierce is co-founder of EOS which had the 4 billion dollar ICO.

shrimpx 8y ago

Next crypto bubble: people mass-bailing out tether by exchanging it for Bitcoin, Litecoin, etc.

gzu 8y ago
Yes people exchanging their worthless asset (tether) for bitcoin so they can sell it for real USD. BTC-USDT -> infinity BTC-USD -> much lower

aedron 8y ago

This article goes to great alarmist lengths, past the point of being deceiving. Just the very first line: > One of the world’s most widely traded virtual currencies faces renewed doubts about its stability [...] Tether is nothing in terms of crypto currency penetration. It does not even have a percent of daily trading. Then a few paragraphs down: > [...] within an hour of the attorney general’s statement and Tether slid 1.4 percent. 1.4 per cent. Even big cap stocks fluctuate that much some days. > At the time of the correspondence, Bitcoin was trading at around $6,500. It dropped 4.7 percent to $5,236.03 at 12:10 p.m. in Hong Kong on Friday. So they mention a price from 8 months ago, and then mention yesterday's price, implying that it fell that much because of this event. Garbage journalism.

ccjnsn 8y ago
For something pegged 1:1 with the US dollar a 1.4% decrease is quite unusual. It's volume is 2nd only to Bitcoin per [1]coinmarketcap. With your 3rd point about pricing changes, yeah correlation/causation, it's a theory that is plausible though. 1.coinmarketcap.com
- GreaterFool 8y ago
  If the peg was actually backed by anything then yes, that'd be unusual.
  - askmike 8y ago
    Not really no, it depends on how much liquidity of a certain type is worth compared to liquidity of another type. Given the volatility in crypto markets this tends to change drastically in different times. Same as why lending rates for crypto & fiat can go from 0.0001% to 0.08% (per day for example) in a matter of hours based on certain sudden price action.
- carrja99 8y ago
  You would think, but not for tether. I've seen it sit comfortably at 98-99% and even once dip as low as 89%.

55555 8y ago

So, let me get this straight... Crypto Capital has claimed that the money is frozen and that's why they can't send it back. Execs at Bitfinex/Tether believe maybe Crypto Capital's principal, Ivan Lee, has stolen it and that's why he won't send it back. The NY AG contacted Portugese and Polish authorities and, from them, was informed that there were no official orders freezing Crypto Capital bank accounts in those countries. So the most likely scenario by far is that Ivan Lee has stolen the money. The NY AG then files a civil lawsuit against Bitfinex, and in doing so reveals to Ivan Lee that the US government is aware that he has stolen the money. But he (Ivan) has not yet been arrested. So now we have a guy who has committed a massive crime and who is comfortable with tax havens and living internationally and corrupting institutions and who has been given a fair warning to go into hiding before he inevitably is indicted. Oh, and he has $850,000,000. Doesn't he sound like, idk, a flight risk? If he flees, regardless of iFinex's failure to disclose the suspected loss to investors, gross negligance on behalf of the NY AG may contribute to investors losing $850 MM. Why wouldn't they criminally charge the guy who they strongly imply has actually stolen the money first before they file a civil suit against the victims* dumb enough to send it to him? (* This is called VAF - Victim Assisted Fraud) There's a lot of angles from which to look at this. Bitfinex/Tether are shady, no doubt. But if the NY AG actually believes what they are purporting to, this stands out to me as a bizarre choice.

stzup7 8y ago
"The NY AG contacted Portugese and Polish authorities and, from them, was informed that there were no official orders freezing Crypto Capital bank accounts in those countries" I've read the 24 pages report and missed that part, could you quote it please? To me, the whole thing looks like this: "Hey Bitfinex, you can't keep running your operations when you're missing 800M. We know that, because we're the one who seized that money from you"
- 55555 8y ago
  Oops, I misread page 15 and confused the Respondents for the OAG. I was skimming. My bad. > To me, the whole thing looks like this: "Hey Bitfinex, you can't keep running your operations when you're missing 800M. We know that, because we're the one who seized that money from you" This sounds right. Pretty interesting stuff

arisAlexis 8y ago

which shouldn't in principle affect Bitcoin which is decentralized and trustless if some third party private companies fail.