"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."
Bitfinex has been shady for a long time and tether from its beginning. So, good luck to them. But that is nothing new.
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.
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.
And yet, multiple-fiat-currency exchanges are, for some reason, sustainable.
People don't realize just how much of a tightrope they are walking on . Serving crypto requires a deliberate business pivot , and not many are keen. This IMO is the largest hurdle crypto is facing for adoption.
There are also references to Crypto Capital. QuadrigaCX is on their homepage.
> 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.
Check out "OZ49 Corporation". It has some shared directors with some other Panama crypto companies, and a director name Oz:
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.
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.
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.
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.
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.
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"?
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?
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.
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.
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?
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.
On exchanges of questionably integrity. And where it is 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?
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.
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.
Hence there might be tears
this doesn't make any sense unless tether is a required intermediate step to liquidating cryptocurrency, which it's not.
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.
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.
Not accesible, that’s a good one.
So it is almost like a caricature of its own criticisms.
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.
People will use it until it gets burnt and crashed.
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's "market price" is manipulated. People cannot exchange tether for dollars without jumping to another exchange.
There are billions of tethers in circulation.
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.
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
- 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.
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.
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"
> 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
"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.
> 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.
It's volume is 2nd only to Bitcoin per coinmarketcap.
With your 3rd point about pricing changes, yeah correlation/causation, it's a theory that is plausible though.
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.
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.
If those were the prices before and after, the drop was 19.45%.
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?
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.
If there's practically zero assets left, the process won't even start.
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).
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
Oh well, we'll see it all again.
Why do you do it?
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.
not convinced about that. there are some reports for and some against the argument but nothing proven
>"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."
Bitfinex doesn't accept US customers though?
Unfair to imply that everyone in Crypto is selling snake oil.
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.
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).
It is hard finding legal and useful. There's a lot of legal but not that great like gambling.
A tiny fraction of companies in the blockchain ecosystem:
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.
Golem I'll give you might be a legit use.
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.
See page 3/4 and then page 27:
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.
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.
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.
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 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.
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.
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.
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.
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 .
Do you know of a better free resource for monitoring the situation by chance? No stake, just curious.
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.
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.
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.
And tax means the ability to force people to give the governmental organization a portion of their productive economic activity.
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.
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.
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.
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.
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.
Per the court filing, the investigation of Bitfinex and Tether began in 2018 and the subpoena went out on November 27, 2018.
CFTC subpoenaed Tether back in 2017: See eg https://webcache.googleusercontent.com/search?q=cache:4hW_8L...
(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.)
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.
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.
what makes you think so?
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.
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.
BTC-USDT -> infinity
BTC-USD -> much lower
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.
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.
Conveniently, in Panama too.
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.
Have we learned our lesson yet?
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.
Not quite possible with the auditing capabilities Bitcoin provides. The moment any amount from those accounts is moved, Bitcoin would probably tank.
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.
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.
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'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.
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?
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.
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.
The price of Bitcoin isn't what is preventing it from becoming a bonafide peer to peer electronic currency. Scalability and UX issues are.
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
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.
Break the private key, do a 30x leverage short and move the coins!
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.
I understand we're doing thought experiments here, but I'd say 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.
It's gotta be doable with the amount of exchanges that we've seen that are short both!
Regulated institutions are great
at it too.
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.
Systems have holes people will go through them
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.
But nobody thinks that. That's the point I was just making.
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.
The trust in tether has always been questionable, this will hopefully accelerate the move away from tether.