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Crypto Market Roiled by New Allegations Against Tether, Bitfinex (bloomberg.com)
454 points by seibelj 23 days ago | hide | past | web | favorite | 303 comments



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."


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-bank...


> "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


So they admit that the money was once lost, just they recovered part of it? Of course, they forgot to disclose.


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.


And why wasn't that disclosed to customers prior to today?


That is between them and their "customers", I guess.

Bitfinex has been shady for a long time and tether from its beginning. So, good luck to them. But that is nothing new.



Skimming through this I've come to some conclusions:-

A reliable banking partner is prerequisite to run a fiat-crypto exchange. Loss of banking partner is fatal to an exchange, and should immediately trigger a wind-down. On the flip-side, the banking partner should in good faith, continue to process withdrawals until the wind-down is complete. Bitfinex's refusal to wind-down after the Wells Fargo decision is irresponsible. Wells Fargo's decision to immediately stop processing withdrawals without a grace period is bad faith.

Reliable banking relationships are difficult to maintain if you are not in the same jurisdiction with said bank. If you want to process USD, you have to be in the US. Multiple fiat-currency crypto exchanges are not sustainable due to this dynamic.

I see a sustainable status-quo as fiat-exchanges becoming single-jurisdiction, single fiat-base. Ironically, just like most banks.


Bitfinex has been playing cat and mouse with banking for years. Even before Wells Fargo blocked their wires, they were in a nefarious banking situation. Bitfinex never wanted to take it slow and get themselves legal in the eyes of the US.

This approach would work if they were much smaller. If they just had $100M under management or something, they'd probably be able to operate in their sketchy way. They'd need somewhere safe to keep $50-60M, then they could take a diversified risk with third party processors to move money to clients.

But Bitfinex is just massive. They have billions under management. It's just not possible to hide these amounts of money when you are banned from the banking system. So yes, they should have shut down when Wells Fargo put the nail in the coffin. But like I said, by this point Bitfinex was already accustomed to opening new companies, new banks, hiding money and obfuscating its nature.

For them it probably wasn't even considered. They just kept trying to move huge amounts of money around, but from what I understand, there have been multiple instances where their money has been frozen, seized, or outright stolen by third parties.


> Multiple fiat-currency crypto exchanges are not sustainable due to this dynamic.

And yet, multiple-fiat-currency exchanges are, for some reason, sustainable.


Very few examples... Coinbase / Bitstamp / Kraken?

People don't realize just how much of a tightrope they are walking on [1]. Serving crypto requires a deliberate business pivot [2], and not many are keen. This IMO is the largest hurdle crypto is facing for adoption.

[1] https://diar.co/volume-2-issue-23/#2 [2] https://www.sec.gov/Archives/edgar/data/1312109/000119312518...


I'm talking about fiat exchanges that convert one fiat currency into another, and never touch crypto. They seem to figure out how to operate in multiple jurisdictions... But that's possibly due to the part where they comply with KYC and AML.


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.


If you want to read more like this, here are some internal chats from a recently defunct Canadian exchange between the CEO and an employee: https://www.reddit.com/r/QuadrigaCX2/comments/b13t6l/gerrys_...

There are also references to Crypto Capital. QuadrigaCX is on their homepage.


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?


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?


I'm curious who these Merlin and Oz fellows are, does anyone know more about them?


That whole exchange is beyond belief.

> Please, pretty please, can I have my $800 million dollars?

> I haven’t heard back from u in so much weeks.

> U there?

(3 weeks later)

< Sorry, was afk... we are working on this hard. Will let u know soon.

It’s like an Upworker chat log, asking when the bug fix will be done. But for Eight Hundred Million Dollars.


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


Here's a video that seems to be the same guy mentioned in the link you shared: https://www.youtube.com/watch?v=1iXBwQMls0o

If this is the guy, there's quite a goddamn rabbit hole. He owns some companies registered in Panama with MEYR ABIZIZ (Authorized Movers https://opencorporates.com/companies/pa/571706). A quick search turned up these reports of Authorized Movers being a scam: https://www.movingscam.com/forum/viewtopic.php?t=21169

I'm no expert, and it's not clear if this is the right Oz Yosef, but it would be amazing if someone who knew what they were doing could untangle all of this.


I think there's 2+ Oz Yosefs. The one you linked to doesn't seem to have overlap with crypto/finance, just basic IT stuff.

Under the OZ49 Corporation's directors (as linked above), you see one of them, and IVAN MANUEL MOLINA LEE, a director of Crypto Capital Corp.



This graphcommons link is down (error 404). I had a peek at it yesterday when it was up and it seemed to contain interesting information I haven't seen elsewhere. Can you provide a reference for this data?


It's back up.



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.


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.


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.


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?


Let's not think of it as a bubble. Let's think of it as Wyle E Coyote running off a cliff and forgetting to look down, because that seems to be the modus operandi of the average HODL.


But HODLers don't really care about tether, do they? Isn't tether mainly used for traders who want to temporarily move out of crypto and use tether for that?


It's been suggested that a large percentage of the crypto market cap is based on tethers which have been used to prop up prices but also used to hedge against falling BTC prices. Essentially, bitfinex prints tether whenever the price of BTC drops, and in the meantime, people use these printed tethers to hedge against BTC (and buy back in when the price trends upward again).

So there are many iterations of compounded phantom value folded into the market cap of BTC. If tether is found insolvent, essentially 80% of the value of BTC disappears overnight.

The entire value of the crypto market depends on people's belief that one tether is worth 1USD. Or so the theory goes.


I've heard that theory, but I can't say I understand it. Let's say USDT goes to 0 instantly. All traders lose their parked money. I can see a crash from panic and from people recouping their lost safe money, but what else does it have to do with with cryptocurrencies?


If USDT would go to 0 instantly many things would happen (a few of the biggest BTC fiat markets would not be able to operate, such as binance's main BTC market). As a practical example big traders would obviously sell their tether straight into crypto on those markets. But since they don't want to be exposed to that much crypto they would sell the same amount on other exchanges (such as Coinbase). In these chaotic events the biggest traders will fly to safety for most on their books (actual fiat, or hedged via derivatives).

But that's not the potential issue being described: Tether is supposed to be worth 1 dollar. A lot of big crypto markets run on tether. If it turns out that a lot of crypto was bought with synthetic dollars (tether) that turned out to be a lot less than a dollar, that would mean the price of many crypto projects got to where it is by imaginary money. In another word: overpriced.


If you're running off a cliff and you know there's a safety net to protect you, it makes the act of running off a cliff safer. Ergo, more people will run off the cliff.

What happens when that safety net vanishes as hoards of people are running off the cliff?

Edited to add:

This isn't really a theoretical issue, either. Risk is part of the price of a security. Something that has a high risk, may be valued less by investors. Often other investments will carry the same amount of reward but less risk.


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"?


I don't understand cryptocurrency markets at all, but, could there be something where the only people participating in the USDT market are those who are at least somewhat confident that USDT is what it claims to be and therefore are pricing it at $1?

What do you get out of participating in the market if you expect Tether to be fraudulent? You'd personally price it at zero, then, right? Can you profitably short it, or does everything just break down if you're right?

That is, if you hold USDT and want to sell it for cheap, who is going to buy it for cheap-but-nonzero?


> if you hold USDT and want to sell it for cheap, who is going to buy it for cheap-but-nonzero?

The market price for one Tether is currently $0.9984 because traders are buying at that price.

So if anyone holds Tethers and believes there's greater than 1% probability that it goes to zero, the rational trade is to sell.

The fact that the price holds at parity tells me that Tether is not an obvious fraud.


There is complacency among the exchanges though. You really believe all that volume and price action is legitimate? Exchanges want tether to be worth what they say it’s worth, 1 USD. The alternative is a massive crash in tether and therefore bitcoin price therefore altcoins price therefore profit (trading fees) for exchanges. The scam can go on much longer than you/anyone can imagine.


It's basically a giant game of chicken AFAICT, because tether is so endemic to the market that if the market as a whole gives up on that valuation then everything goes boom.


It's basically a giant game of bullshit - just the latest iteration of "Never give a sucker an even break."

When you have nothing to trade but trust and hope, people who take advantage of trust and hope are always massively rewarded.

Occasionally someone crosses the wrong people and jail time ensues, but if you're politically adept enough to avoid that - at least until you die and/or disappear - no career pays as well as financial fraud.


How do you think this would work exactly?

If traders begin to lose faith in Tether, wouldn't they sell Tether and buy BTC, ETH, XRP, BCH, LTC, EOS etc.?

So wouldn't that cause the USDT price to decline to $0.97, $0.95, $0.90, $0.75, etc.?

And at the same time the demand for BTC, ETH, XRP, BCH, LTC, EOS would cause their prices to rise, wouldn't it?

I suppose at some point, after the $3B of Tether is liquidated, people could lose confidence in the entire market, but until that happens wouldn't cryptocurrency prices increase rather than decrease?


Something like 80% of trades on the market currently involve tether, and tether accounts for ~$3 billion of (presumed) cash-like holdings. If it collapses then liquidity of the market is going to be severely hit, and the people trying to exit to fiat are likely to cause a variety of bank-run type situations.

These will be exacerbated by exchanges which have been run in bad faith and which do not have either the cryptocurrency or fiat reserves they claim (see Quadriga CX for a recent example).

Either way, it's going to be interesting to watch.


> it still trades 1:1 to USD today

On exchanges of questionably integrity. And where it is impossible to reliably short the instrument.


> impossible to reliably short the instrument

I see this a lot, if you can't sell short then the price can't decline?

If I held Tether and thought it was worth less than $1.00, I would sell it.

If most people think it's worth less than $1.00, they would sell it and the price would drop to reflect the risk.

Why doesn't this happen? Is is just crooked exchanges posting phantom orders? If so, why don't smart traders sell into that and liquidate?


The problem is beliefs aren't homogenous. If 99% the world that tesla was worth $0 and 1% thought it was worth $100, then without short sellers the price would trade much closer to $100 than 0. But if there are short sellers than the beliefs of the market start to average out more.

Also there is empirical proof short selling matters because during the banking crises they banned short selling which causes certain bank stocks to jump up, and then when they allowed it again the prices fell like a rock.


You mean Kraken? There are many OTC lending markets that allow for tether shorting.


Seems like counterparty risk would make this a bad trade; if Tether collapses, the whole system is likely to follow.


I don't think many people assume it to be this binary: if Tether doesn't have have dollars behind every USDT. Buying USDT below $1 is simply buying debt. If you believe they will at some point in the future be able to give you a dollar for every tether, buying under $1 is very smart.


Participating in a Ponzi scheme can be profitable if you get out early enough, perhaps people are expecting Tether to stand a bit longer.

Alternatively, perhaps people expect the revelation that Tether isn't fully backed to proceed like the dollar going of the gold standard. It comes with a lot of noise, but the thing keeps working because people keep using it. In this scenario, Tether essentially becomes Bitfinex fiat. That would be a really cool dystopia.


You can keep dumb money flowing by screaming fud a lot and appealing to emotion.


Yep. Most smart people, even the most diehard fans, knew tether was at the very least, extremely shady.


Correct, sometimes wishful thinking clobbers rational thought

Hence there might be tears


> the entire cryptocurrency economy relies on tethers being valued at par, given that they're how billions of dollars of liquidity are denominated.

this doesn't make any sense unless tether is a required intermediate step to liquidating cryptocurrency, which it's not.


That’s one of the problems. Liquidating “crypto to fiat” is not that easy.


Depends on the amount. If you suddenly have 1 billion $ worth of BTC to liquidate, then yes. It might not be so easy, but this is the same with any asset, stocks, bonds or commodities. If you want to liquidate less, why not use established exchanges? Last time I checked their limits were quite high.


Sincerely, but if they were completely backed up and valued at par, they wouldn't call it theter, they would just be using USD.


But from this, it looks like Bitfinex was completely amateur hour, and that—but for Tether being raided to cover the results of that—Tether might not have been a scam at all.


Why does this attitude that they're two different things continue?

Two corporate officers signed the credit line contract on behalf of Bitfinex.

Two corporate officers signed the credit line contract on behalf of Tether.

They were the same two people.


Yes, that's the surprising bit. Tether USD backing seems to have been fine.

But Bitfinex screwed up, I guess partly due to panicking because they couldn't get a proper bank connection.

It also seems that the money is lost, just not accessible, at least at the moment.


Ah, no. These people are shady AF. They intermingle funds and shuffle them around behind the scenes. This whole system is a black box surrounded a tower of cards.

Not accesible, that’s a good one.


WELL, do note that this is about an infraction that occurred in mid-2018, LONG after the "ardent HODL-ers" were skeptical about it and while Tether had its highest level of confidence in the market, instead of like 2016.

So it is almost like a caricature of its own criticisms.


Most people willingly ignored this because they feared that panic and a'bank run' on tether would cause a crash similar to Mt.Gox.

Tether is infact a fed instead of the fed, but without the largest military power in the world to defend it, a scam that is backed by nothing and there have been a lot of attempts to point that out. Check out 'bitfinexed' on twitter and medium.


Bad news is that so many exchanges use it as it is such a useful instrument for users who wish to get out of crypto temporarily when their exchanges don't support fiat trading.

https://coinmarketcap.com/currencies/tether/#markets

People will use it until it gets burnt and crashed.


Tether is currently being traded around 99 cents. The market, so far, has assigned a 1% devaluation, despite this report showing that they basically lost $850M. From what I can see on Coinmarketcap, there is $2.83 Billion Tether in circulation.

So it would appear Tether has lost at least 30% of its assets (cash converted to Crypto Capital debt, which = toilet paper). I am shocked that people aren't taking this more seriously.


> Tether is currently being traded around 99 cents

Tether's "market price" is manipulated. People cannot exchange tether for dollars without jumping to another exchange.


Kraken, a US based exchange trades tethers for dollars. This is plainly incorrect.

https://trade.kraken.com/markets/kraken/usdt/usd


The price there seems to be sliding... currently showing $0.972.


Kraken has no volume. If a player were to sell 50 mill it wouldn't find a buyer.

There are billions of tethers in circulation.


1% fluctuation is normal. Tethering is stabilized through arbitrage.


The only way Tether can be stablized through "arbitrage" is if there is a risk-free way to trade 1 Tether for 1 USD.

For the average user, there is no direct way to cash out your Tether for 1:1 USD. I imagine that big clients do have the ability to trade Tether for USD. Because of that, they will buy up discounted Tethers on exchanges and redeem them to Tether Company for 1 USD each.

HOWEVER, this clearly relies on Tether Company providing that exchange. If Tether Company STOPS allowing the big guys to do this arbitrage, then suddenly the house of cards would collapse very quickly. The longer Tether stays below 1 USD, the more pressure is being put on their company by arbitrageurs.

Furthermore, we know that Tether has made a loan to Bitfinex for $900M. The Tether Company therefore only has cash on hand for about 2/3 of the outstanding Tether, assuming they had 1:1 reserves prior to lending cash to Bitfinex.


There are plenty of ways to arb without actual settlement to USD. Look up "statistical arb".

Even without stat, all you have to do is go USDT <> USD <> BTC or similar and take the arb across multiple pairs. It's a game of musical chairs until someone with enough cash decides to break the peg


Not true. You can trade USDT for USD on Kraken.


That's not arbitrage though. Kraken has a market rate. The only way to arbitrage the USDT / USD rate is if you have a reliable place to sell USDT at 1:1.


You can definitely use Kraken's market to arb:

- buy BTC with your USD on Coinbase Pro.

- sell your BTC into USDT on Binance.

- Sell your USDT back into USD on Kraken.

It really doesn't matter if the last step is 1:1 or another rate. If the price between Coinbase and Binance is big enough you can profitably arb this.


You are right, but it's a tiny market though.


This is the reason there are 4-5 tether competitors. All who have more reliable management & better audit controls.


Yes it’s been very obvious for at least a year.


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.


"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"


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


Recent release from Tether:

"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.” https://cointelegraph.com/news/tether-hits-back-at-claims-it...

So basically they are saying Ivan didn't nick it - the authorities froze it.


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_fr...


This is only a small fraction of the 120k bitcoins stolen at the time though. It may be a coincidence.


Allegedly stolen.


? The FBI collaborates on the investigation and even returned them some funds they were able to seize a few months 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.


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.


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


You would think, but not for tether. I've seen it sit comfortably at 98-99% and even once dip as low as 89%.


If the peg was actually backed by anything then yes, that'd be unusual.


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.


> One of the world’s most widely traded virtual currencies

Looking at coinmarket cap just now it's No 2 by 24hr trading volume. Bitcoin $18bn, Tether $16.5bn, Ethereum $8bn, all others less than 4.


5236.03 is not 4.7% less than $6500.

If those were the prices before and after, the drop was 19.45%.


journalism in crypto space is indeed ridiculous



Doesn't this mean they can't sell/buy/exchange tethers at all!


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.


Well they issued some more tethers:

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?


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.


It will hold it's peg until it doesn't, and when it doesn't you will take a 50-70% haircut. Just watch.


Tether’s worthless if it’s not worth a dollar. You’ll either get 100% or 0%.


It's worth the market's perception of what the holders will get after a prolonged bankruptcy process.


The lawyers and accountants get paid out of the leftover assets.

If there's practically zero assets left, the process won't even start.


You may remember the implosion of mtgox, and people buying mtgox ‘dollars’ at a discount. There’s always a greater fool, apparently.


Wait, what's so foolish about buying debts for a discount? There's an entire industry (collections) devoted to that. Sure, that time they lost, but hindsight is 20/20.


Mt. Gox bankruptcy claims proceedings are marching along slowly, so I wouldn't say that they've lost just yet.


That is right, it is an industry. It has established risk models. It has norms and remedies. Most importantly, it has the triumvirate of debt worthiness (aka credit bureaus) at it's beck and call.


It had to start somewhere didn't it?


If you bought btc at a discount at mtgox you are mega rich now.


If and only if you got your btc out of mtgox.


MtGox paying out with the remaining funds.


> And the current price suggests that iFinex has got its shit together.

Or, it could mean that they keep buying up coins on the market at face value to keep prices stable to avoid a run on the bank (which they can only do as long as their reserves remain).


You are holding counterfeit money and hoping you can offload it before the shit hits the fan. When everyone starts running for the exit, you may not be in the front of the pack.


You can use it as a medium of exchange, temporarily, never expose yourself to a large extent.


>I think the price is more relevant than the news.

Only true if the price is pure market driven, not manipulated by a powerful player. Like say...idk Bitfinex.

>I personally hold a significant amount of USDT/Finex Dollars and not worried.

I'd be panicking, but to each their own


I imagine that bitfinex/tether is liquidating reserves to hold the peg. They can keep it pegged until they run out of money and then not only is tether worthless but so are all your coins on their exchange (and probably most other exchanges that use tether). That’s how bank runs work.


Lessons learned from sovereign debt crises: don't defend the peg. Let it float now, it will hurt more if you defend it all the way to insolvency. Devaluation is better than forced debt restructuring or full bankruptcy.

Oh well, we'll see it all again.


That reasoning doesn't matter for Bitfinex because when the money runs out they can just exit scam.


Maybe they already have. 850m is missing right?


Why would you hold significant amounts of Tether? There's no upside and all of the downside.

Why do you do it?


It's used for margin trading at exchanges that do not accept fiat


I suppose leveraged betting is done best when backed by worthless collateral.


exactly and that means that regular long-term investors should not be worried at all about this.


Best liquidity, most pairs, and can be bought at a discount.


If the discount was because they lost funds, that was insider trading. That was not public information. And of the bad kind.


Why hold USDT? Why not hold other coins with proven reserves, or DAI?


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.


> 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.


> 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


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.


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...


> 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?


Binance has other stablecoin markets. You can see the price just fine there.


Cryptocurrency exchanges seem to be full of fraud and deception.


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.


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.


> Major companies like Samsung / Facebook have teams working on PoCs.

Samsung has entire teams working on PoCs for just about anything. Including a lot of terrible ideas that end up in the trash (I personally worked on some of them :)

Facebook wanting to enter payments and money transfers through Whatsapp makes a lot of sense. But the fact it might be backed by some internal and centralized stablecoin is completely irrelevant to end-users.


> 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).


There seems to be a real project afoot with the Depository Trust & Clearing Corp but I'll give you that a) it hasn't released and b) they could probably do the same with MySQL https://www.forbes.com/sites/michaeldelcastillo/2019/04/16/b...

It is hard finding legal and useful. There's a lot of legal but not that great like gambling.


So, who isn't? Look throughout the blockchain ecosystem and all you will see are scams, illegal activity and get rich quick fools.

A tiny fraction of companies in the blockchain ecosystem:

Pfizer, Fidelity, Microsoft, Rutgers University, T-Mobile, National Bank of Canada, John Hancock Life Insurance, J.P. Morgan Chase Bank, Ernst and Young.

If all you are able to see when you look at blockchain engineers are scammers, lawbreakers, and "get rich quick" fools, I'll humbly suggest that you haven't really been looking.


I feel the same about 99% of crypto participants - but you can't deny there are a handful of legitimate areas. IPFS and Golem come to mind.


I'm not sure IPFS uses blockchain? It seems to work like bittorent.

Golem I'll give you might be a legit use.


Sorry, should have been clearer. Filecoin (from the same company) sits atop IPFS, acting as a cryptocurrency for distributed file storage.

IIRC, their ICO was massively oversubscribed a year or two ago, so they're sitting on a great big pile of cash.

I don't think it's a viable business model yet, but it's definitely not a scam.


I can say the same about people making sweeping generalizations. Maybe you're not as intelligent as you think you are, and you're in fact missing something due to your clouded judgement.


I feel exactly the same way.


The books are all seriously cooked. There are few honest actors and it's shocking to me how many people are still willing to play the game.


It must be tempting to transfer the assets to some account you control as there's almost no way to prove who did it or catch you.


Just ask Trendon Shavers, Charlie Shrem, or Ross Ulbricht.


Don’t ask Ross Ulbricht. You’ll have to ask the DEA agents who embezzled money while making unsubstantiated accusations of murder for hire. https://arstechnica.com/tech-policy/2016/08/stealing-bitcoin...


And those DEA agents are also in prison.


The accusations were quite substantiated, his defense was about as laughable as 'my baby brother did it'.


Ulbricht never presented a defense for the murder-for-hire charge because the charge was dropped and never went to trial. Ulbricht has been sentenced to double-life in prison for all non-violent charges.


This isn't right - his attempted hits directly led to a longer prison sentence and he could have refuted the factual allegations if he had a defense for them.

See page 3/4 and then page 27:

  https://s3.amazonaws.com/s3.documentcloud.org/documents/1391926/gov-uscourts-nysd-422824-142-0.pdf


Some say that this is what the world will become.


How is the a helpful or enlightening statement? You're just spreading FUD.


just the centralized ones...


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


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.


>The US dollar hasn't been backed by anything since 1971 and is still ticking strong.

I think you might be overstating. The US dollar is not backed by an asset because it is an asset. At this point, the dollar is backed by the government, the government's authority, its military power, and the future value of its debt. That is not gold, but it is not nothing either.


By the same token, cryptocurrencies are backed by the computing networks underlying them, the potential future usage of these computing networks, and by your ability to buy guns, drugs, and hacks with them. This is also not gold (although you can buy gold-backed cryptocurrency: see Digix), but not nothing either. That's why cryptocurrency evangelists harp on adoption and new use-cases: the value of any currency is primarily set by what you can spend it on. Right now you can spend Bitcoin on a lot fewer things than US Dollars, but your personal profit potential from holding a currency derives from the rate of increase in adoption, not its current level, and Bitcoin has a lot of room to grow while the dollar has virtually none.

Tether intrinsically has none of these, but because of its adoption by many exchanges, it's convertible into other currencies that have more intrinsic value. So as long as it remains convertible, it will continue to have value.


USD is backed (among other things) by the government accepting taxes in it. If you don't pay, they will come to your house with guns and take you away. This creates a demand for USD that is completely unlike any demand for crypto.


Again this weird argument. If the USD were valued due to its tax-demand, raising taxes would increase the value of the dollar!

Also the gov creates more supply to the dollar than the tax demand always, so its not really clear. And most taxation is a percentage of income or value measured in dollars itself.

This argument never clicked for me: where is it coming from?


The argument is not that this is controls the USD value. Instead, the argument is that this gives an intrinsic base value to the USD. This base value means people have some reason to hold USD, which causes them to make other transactions in USD. The actual current value from USD comes from the other transactions, but that is not intrinsic to USD. Instead, it is an emergent property.

The intrinsic value of USD is consoling, because it prevents the value of USD dropping to 0, hence there will always be a possibility of the emergent value reappearing.


This is correct, raising taxes would increase demand for dollars. Supply is greater than the tax demand, but much of the additional demand comes from the tax in dollars requirement. Since businesses have to pay sales tax in dollars, they're inclined to only accept dollars to avoid complex accounting and exchange rate liability. Being able to transact with US businesses is a large source of dollar demand.

It's also worth pointing out that income doesn't always translate to inflows of physical dollars. Complex corporate accounting standards often result in recognizing revenue before any cash is received, and non-cash transactions that affect income.


> with guns

Umm, yes?


...the same way that Bitcoin could, in theory, be backed by hired goons (or drones) that come to your house with guns and take you away. It wouldn't surprise me if that's how people in the underground Bitcoin economy (drugs, gambling, sex trafficking, arms dealing) actually operate, though I try to stay away from those peoples so I wouldn't actually know. There is certainly a difference in degree - the U.S. military is orders of magnitude more powerful than whatever goons you can hire with Bitcoin - but not a difference in kind.


That's an interesting analysis. I hadn't thought of it that way before, simply because I wouldn't really value any other currency that way. I.e. I would not consider the growth in the ability to use euros in additional countries to have much impact on their value. I guess my thinking is that as long as there are exchanges, you can buy anything with bitcoin just like you can buy anything with dollars.

What sets that exchange rate is demand for bitcoins, and demand for bitcoins would be equivalent to what you can buy only with bitcoins. So, I guess in a way that tracks to exactly what you describe. The part that doesn't track is the profit potential. Currency speculation is an interesting thing, but it doesn't usually track with the use of a currency.

I am pretty bearish on the long term viability for cryptocurrency growth, though. I expect transact in bitcoins about as often as I transact in any other currency...almost never. There are no wages, products, services, or geographic areas that require the use of bitcoin.


Over the long term currency prices do track with currency use, where "use" is investment in securities denominated in the currency + a country's net exports. As the country's export economy grow, a foreigner can buy more things with the country's currency. The free-market value of the currency should rise. If it does not rise, then goods from that country will be underpriced relative to their true value, which means they will be overly competitive in the market, which causes a flood of cash into the country (a current-account surplus). Eventually the market rebalances as the currency becomes un-pegged and starts to float freely.

This is what has happened with the U.S. and China over the last 3 decades. As Chinese goods became more competitive on the global market, American export dollars started to flow into China. China refused to remove the USD/RMB peg, which created a long-term current account deficit in the US and made American goods & labor non-competitive with China. When they finally did remove the peg (after significant political pressure from the US), the value of the RMB rose significantly: it was 1:8 a decade ago, it's now 1:6.73.

Over the short term there are a lot of conflating factors - pegs, speculation, interest rates, wars, creditworthiness, etc. But over the long term, the "backing" for any currency is what you can buy with it.


> 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.

The small spread is very interesting. I would also expect it to be much higher.

Tether seems to be pegged at $1.00 on Bitfinex but trading (increasingly) below that on Kraken [1].

Do you know of a better free resource for monitoring the situation by chance? No stake, just curious.

[1] https://www.cryptocompare.com/coins/usdt/markets/USD


Bitfinex reports their prices in USD but I'm pretty sure that's bullshit. It's like saying "Each Tether is worth $1 because we say so." The Kraken price is much more accurate.

I suspect the price is holding up because most holders of Tether don't consider this a big problem. Either they believe that the NY AG will find that there are adequate reserves backing Tether after all, or they believe the reserves don't matter at this stage and other holders of Tether will continue to believe it's worth a dollar. Comments on this HN thread seem to support that. It's unlikely to change unless some exchanges go under entirely, and authorities in the U.S. don't really have the jurisdiction to do this.

I've been following coinmarketcap.com and openmarketcap.com, and also have a Coinbase Pro account that I'm using to track the Coinbase price (which actually diverged pretty significantly from the CMC prices this afternoon...must be a time lag). I don't have enough invested in crypto to get particularly emotionally attached either way.


This is much worse than not having reserves. In reserve banking there may be insufficient liquidity to handle a significant withdraw event but theoretically the money in the bank balances, it is just not liquid because it is lent out.

The situation with tether is much much worse. About 30% of the money invested in tether is gone and unlikly to come back. The books do not balance, it is not a timing issue, it isn't a liquity issue tether or bitfinex is insolvent.

This is important to realize, tether or bitfinex is insolvent/bankrupt if that 850m is truly gone. It is covering up this with loans between related parties, but the legality of those loans is probably questionable at best but bitfinex and tether are intertwined such that they likely have shared liabilities legally.

Someone is bankrupt right now. Maybe both.

The fact that tether or bitfinex isn't dropping or outright dead confuses the hell out of me. Is it so critical to crypto now and so central that even if it is involvement we have to believe in it or the sake of this whole market? This market isn't rational or I must be missing something.


I think a lot of people who have accounts at USDT-only exchanges may not realize this affects them. Tether has been marketed as a replacement for the dollar and a safe place to park your wealth when you are "out of the market" in cryptocurrency. Because it's not viewed as a crypto or speculative asset in itself, people might see the headlines but not make the connection that potentially all their assets on a USDT exchange are at risk of becoming inaccessible.

Also, unattended arbitrage bots might end up equalizing the price now but becoming major bag-holders later. Right now, the spread between the Coinbase & Bitfinex BTC prices is > $300. The logical response of an arbitrage bot is to buy Bitcoin on Coinbase (spending USD) and sell it on Bitfinex (receiving USDT); they provide the Bitcoin liquidity that people who want out of Tether need. This creates a counterflow of BTC from Coinbase to Bitfinex, spending down their dollar reserves at Coinbase and accumulating a Tether hoard at Bitfinex. If the bottom falls out of Tether, their accumulated profits (and any capital invested) becomes worthless.


US government has the power to tax the entire US economy, providing financial backing to the US dollar. This is why fiat currencies weaken with their national economies, and vice versa


I really want to underline this. This is the real power of fiat currency, the ability of a government to tax people in it's region.

And tax means the ability to force people to give the governmental organization a portion of their productive economic activity.


People always point this out. The astute ones point out the other half of this - the power to tax is based on the military's ability to compel payment.

One other way to look at this is physical security being a service - a fundamental one - being procured by your tax dollars. This is actually mentioned explicitly in the first sentence of the U.S. Constitution: "We the people...to insure domestic Tranquility, provide for the common defense...do ordain and establish this Constitution." By being a citizen of the United States and complying with its tax laws, you enlist the full force of the U.S. military in securing your rights.

You could easily imagine someone offering to provide military services for Bitcoin. Depending on how they wield these military services, this could range from welcome to highly inadvisable; if it turns out they are in opposition to the interests of more powerful militaries (i.e. the U.S, or other major nations), they could quickly find out just how powerful the U.S. military is.


This is the weakest theory I've read yet; people aren't exiting tether because it's too inconvenient. Forgetting that they would've already gone through the KYC process when they entered the crypto market, and there's little hassle in a market sell-order and withdrawal request. The only inconvenience is the time the bank withdrawal would take to process, which isn't necessary unless your plan is to exit the market entirely, as exchanges are covered by FDIC insurance.


Many of the non-fiat exchanges don't do KYC. I've signed up to a bunch (and was able to trade, subject to certain volume limits) with just a burner email address and Google Voice number.


This is a fascinating view of things. It's not totally incongruous that Tether could just be worth approximately 1 USD indefinitely, "by convention" or in the same way that Bitcoin has value.


If they lost $850m they may have $1150m or so left in cash and can use that to support the tether price.


So anyone currently holding USDT is playing a ~$1B game of musical chairs?


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.


Minor correction: they only raided $700m from Tether reserves, as part of covering the loss of $850m in Bitfinex funds.


Because it doesn't matter lol


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.


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.


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".


> 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.


> For all the noise about Tether being insolvent, it turns out that it was completely solvent?

I don't think this says that; it says that the ~$2bn in tether had at least $700 million in actual backing, because at least that much was transferred out of it's backing.

It still could have been insufficiently backed to start with.


To repeat the other reply:

The primary suspicion about tether was lack of solvency, and the [edit: CFTC] subpoena went out in late 2017. It would not have taken more than some weeks to determine if the assets were not present.

It's pretty hard to imagine the AG sat on tether insolvency for 18 months.


> The primary suspicion about tether was lack of solvency, and the subpoena went out in late 2017

Per the court filing, the investigation of Bitfinex and Tether began in 2018 and the subpoena went out on November 27, 2018.


We're apparently talking about two different subpoenas.

CFTC subpoenaed Tether back in 2017: See eg https://webcache.googleusercontent.com/search?q=cache:4hW_8L...


So...the CFTC isn't a State of New York agency, so what does this have to do with the reading into a New York AG action that Tether must have been solvent otherwise the AG wouldn't have sat on information since then?

(Also, the CFTC and US DoJ investigations were still active at least as recently as November of 2018, which doesn't sound like they found that things were A-OK, more like they were—and presumably still are—trying to nail down the details and responsibility/liability issues surrounding identified irregularities.)


> So...the CFTC isn't a State of New York agency, so what does this have to do with the reading into a New York AG action that Tether must have been solvent otherwise the AG wouldn't have sat on information since then?

Because it's pretty hard to imagine the CFTC would not have communicated with the NY AG if they had the info about Tether's insolvency. Also hard to imagine NY AG not contacting CFTC before filing.

> (Also, the CFTC and US DoJ investigations were still active at least as recently as November of 2018, which doesn't sound like they found that things were A-OK, more like they were—and presumably still are—trying to nail down the details and responsibility/liability issues surrounding identified irregularities.)

Again, with regard to insolvency, it's pretty hard to imagine CFTC would allow Tether to continue operations for more than a year if they had evidence of insolvency.


> Because it's pretty hard to imagine the CFTC would not have communicated with the NY AG if they had the info about Tether's insolvency

It's also pretty hard to imagine that, in filing their own case, the NY AG would reveal sensitive information about a still-active federal investigation, but that's your apparent theory.

> it's pretty hard to imagine CFTC would allow Tether to continue operations for more than a year if they had evidence of insolvency.

It's pretty easy to imagine that of taking action would in any endanger the ongoing DoJ criminal investigation that it would hold back; it's worth noting that the ongoing law enforcement investigation exemption was among the exemptions CFTC cited in June of last year in declining to provide documents in response to an FOIA request about the Tether-related subpoena.


> For all the noise about Tether being insolvent, it turns out that it was completely solvent?

what makes you think so?


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.


> 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.


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.


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


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.


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


Yes people exchanging their worthless asset (tether) for bitcoin so they can sell it for real USD.

BTC-USDT -> infinity BTC-USD -> much lower


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


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


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


Any existing peg can be maintained, until it can't.


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


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-t...


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.


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.


"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.


This reads like 850M just went straight to some entity in Panama.

"Missing". Please.

Conveniently, in Panama too.


> 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.


> "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...


It looks like Crypto Capital is still in business - https://cryptocapital.co/


The first exchange in their list is... QuadrigaCX.


You'd think they'd update that.


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?


The lesson will never be learned.

The Ponzi scheme is as old as money itself. It’s never gone away. The one thing that crypto currency truly has revolutionized is the Ponzi scheme. You can do it any number of ways, add any number of twists, and do it over and over again. With crypto you don’t even have to be subtle. When the pot gets big enough you just outright steal it.

It’s possible that Satoshi himself will try to liquidate his stake at some point, crashing BTC itself and make off with a cool billion. Who knows. That might have been the plan all along.


> It’s possible that Satoshi himself will try to liquidate his stake at some point, crashing BTC itself and make off with a cool billion. Who knows. That might have been the plan all along.

Not quite possible with the auditing capabilities Bitcoin provides. The moment any amount from those accounts is moved, Bitcoin would probably tank.


There is no auditing whether he sold all his keys in the physical world. They may never have "transacted" on the blockchain, but that does not mean he never just gave away the ability to transact them physically.

He may also have taken out a loan from a traditional financial institution and used them as collateral.

There is a very real possibility that they are in fact owned by someone else now, who has made the same exact calculation you have - they are a valuable asset that has exactly zero liquidity.


> There is no auditing whether he sold all his keys in the physical world.

Are you trying to claim that someone would buy Satoshi's coins without moving them to a wallet they control?

In this scenario, the person would have 'purchased' the coins with precisely zero assurance that Satoshi wouldn't just move them to a new address at any point, as he/she/they still have the private keys.


Someone could have the whole wallet...

As I said, it is impossible to verify that that isn't the case. He could have taken a loan with the whole wallet as collateral. That isn't the same as claiming that Satoshi did that, but it's not like the audibility of the blockchain spreads all the way to the real world. There's really no saying what Satoshi has done, and the anonymity means there's no way to find out.


It.. doesn't work like that. Suppose someone sells you a private key, or even a hardware wallet, claiming that it "contains much Bitcoin". There's no way for you to be sure that the seller doesn't have a backup. Or is selling ten other copies to other people.

It's like trying to sell an account by selling the password to it. The first thing you do is change it so the previous owner can not get in anymore. Before you did that you can not be sure that you are the only one with access. On Bitcoin the only way to change the password is to move the funds to a new address.


It works that way if he transferred the private key and then they murdered him. Blockchains and meatspace have different rules.


The only way anyone could assume control of the account as collateral is by knowing the private key. If the funds are not transferred to another wallet, then both parties now have knowledge of the private key. As such, the entity providing the loan has to trust that Satoshi will not move the funds. That would be an insane risk to take.


But would someone ever buy bitcoins from someone without actually permitting a transfer? How would you ever have an assurance that seller has relinquished control of the coins?

Example: I own one coin. I sell my private key to you for $5k fiat. You take my private key and sit on it thinking it’s yours. After a use a copy of the private key to transfer the coin to a new wallet I own. I’ve now stollen the coin I supposedly “sold” to you.

What am I missing?


Why should it tank? This would resolve uncertainty about the fate of a few percent of the whole supply, so the direct effect is bounded by that few percent (depending on how likely the market thinks it's been lost).

Indirectly it could jump-start a recursive reaction, but then anything could.

Dumping most of it all at once could tank the price, but to do that Satoshi would have to be an idiot.


Wouldn't someone in that position just start a slow and consistent divestment over a long period of time? Make it business as usual.


The wallets have been untouched for a decade. The first bitcoin to sell from it wouldn't actually crash the market, but the emotional effect of a small chunk of a very large chunk suddenly moving would be fairly big.


I don’t disagree, but it could have the reverse effect.

Everything from just a ton of media attention and some adoption, to maybe something really positive like coins getting deposited to charity wallets (pineapple foundation seemed to get a lot of attention/vitality for donating their bitcoin).

And it would be pretty ironic if it the coins moved and price of bitcoin crashed and actually became a peer to peer electronic currency for the masses.


> And it would be pretty ironic if it the coins moved and price of bitcoin crashed and actually became a peer to peer electronic currency for the masses.

The price of Bitcoin isn't what is preventing it from becoming a bonafide peer to peer electronic currency. Scalability and UX issues are.


I agree with UX, but scalability has a working solution in the Lightning Network. However, that needs major UX development...

Bitcoin also needs fungibility:

"Fungibility is the only property of sound money that is missing from Bitcoin & Litecoin. Now that the scaling debate is behind us, the next battleground will be on fungibility and privacy. I am now focused on making Litecoin more fungible by adding Confidential Transactions." -Charlie Lee

https://twitter.com/SatoshiLite/status/1089935081337085952


> but scalability has a working solution in the Lightning Network.

Not without an increase in the block size, which has been a contentious issue. At 7 transactions per second, it would take 31 years of full blocks for every person on Earth to just open a Lightning channel each, in uninterrupted succession.


Sell a tiny bit and then wait until it recovers. Rinse and repeat.


Sell a tiny bit, buy a lot when it tanks, sell the new lot.


Could also do that but when you have Satoshi amounts the problem becomes getting rid of it so I'm not sure buying more will help beyond the obfuscation advantages of holding it in a different wallet.


I wonder what the maximum leverage you could short with if you had access to those coins...

Break the private key, do a 30x leverage short and move the coins!


It is that last bit where it gets sticky.

If you tank the market and create systemic insolvency then you might hold $1B of short contracts at an exchange where the operators have packed up and fled to anonymous sandy beaches, and for all your cleverness those contracts and $10 might buy you lunch tomorrow.


> It is that last bit where it gets sticky.

I understand we're doing thought experiments here, but I'd say the really tricky part is breaking the private key.


> the really tricky part is breaking the private key

That's the interesting thing, you can try to brute force keys in general by just throwing enough money at the problem. Technology always advances and makes cryptography less secure.


Could this work? Just run an exchange and become long cash and short bitcoin, or acquire an exchange that is long cash and short bitcoin. Liquidate the exchange and everyone is even.

It's gotta be doable with the amount of exchanges that we've seen that are short both!


It would tank, but he still may be able to do it. Even if the price plummeted to 1/10th its current value it would still be a fortune.



He is the most likely candidate.



It’s highly unlikely that there’s enough demand for Satoshi to cash out fully. Regardless of the panic that their coins moving would cause, the actual liquidity on the exchanges is probably far far less than what the exchanges state, meaning that anyone trying to move that many coins would tank the price.


No way. This stuff was created to be the wild west. Let it keep failing until people come to actually understand the risks and learn the appropriate amount of trust, and then for companies find ways to become trustable.


It's funny people complain about regulation until they get screwed over.


> It's almost like unregulated financial institutions have a tendency to screw over their customers...

Regulated institutions are great at it too.


I'm not sure that your assertion that regulated financial institutions are somehow safer checks out with recent history.

Remember the Bernie Madoff ponzi? Bernie Madoff was literally the chairman of the NASD.

The 2008 financial crisis occurred inside of heavily regulated markets, and it was so bad it nearly brought down the world economy.

The effectiveness of regulation vs. the friction it imposes is what matters, along with how (and if) it is enforced.


Those guys actually are regulated. The axe falling on them was inevitable, it's just taken a long time.


Do you think regulated financial institutions don't cause massive societal harm? Have you seen the big short?

Systems have holes people will go through them


What's the lesson? That cryptocurrencies have different risks than other kinds of financial technologies? I think that is pretty commonly understood already.


> That cryptocurrencies have different risks than other kinds of financial technologies?

These are known risks that have regulations that significantly reduce the chance of them happening in regulated currency markets and banks.

Cryptos took the Wild West approach due to... something... and somehow think that the scams that people have used in the past with banks will not be used again with crypto.

SURPRISE!!!


> somehow think that the scams that people have used in the past with banks will not be used again with crypto. SURPRISE!!!

But nobody thinks that. That's the point I was just making.


> "Cryptos took the Wild West approach due to... something... and somehow think that the scams that people have used in the past with banks will not be used again with crypto."

The point is that people who make bad decisions will fail before becoming too big to fail. This is in the genesis block of bitcoin.


Fraud is a risk with other financial technologies too.


In the same way that eating raw meat has "different risks" than eating cooked meat.


Among the crypto currency enthusiasts, sure. But each wild bull ride there are new investors/victims who are following the headlines, not the industry.


Greed begets greed. The sad part, really, is that the ideology of cryptocurrency at the start was never about greed.


Pretty sure it was. A demented genius needed a way to sell drugs on the dark web. He was annoued with merchant accounts shutting him down. He needed a better way to funnel drug money to his pockets. Satoshi bounced the second Gavin Andresen mentioned the word CIA.


Nope. If you don't like it, you don't have to deal with it and it isn't your problem. I, for one, like being able to spend my money as I please, even if it entails higher risk. I don't need to be coddled.


Have you? If so, why do you need to invest in unregulated financial institutions?


Nah, looks like it was governments confiscating the funds rather than a ponzi:

https://bitcoinexchangeguide.com/cryptocapital-co-may-be-cry...


I’m going to refer every libertarian who argues for the abolishment of all forms of regulation to your comment and this post.


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.


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.


They are literally making those tethers out of thin air, you know that right? It's not backed 1 to 1 at all and this report clearly calls it out.


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