Everything You Need to Know
Just in case you missed the news over the weekend, something big happened with Tether. Some have speculated for years that Tether was not properly backed with cash reserves as promised. These allegations did not stop the 1st popular stablecoin from growing in market cap and popularity. Tether has long been one of the top ten coins in terms of market cap. Finally, it appears that there might have been some truth in these rumors and that caused the markets to tumble over the weekend.
It is important to fully understand the connection between Tether, Bitfinex, and iFinex to explain this further. Bitfinex is one of the oldest Bitcoin and cryptocurrency exchanges, established in 2012. It is owned by parent company iFinex, which is registered in the British Virgin Islands but is headquartered in Hong Kong. Tether was initially issued in 2014 with a 1 to 1 value pegged to the U.S. dollar. Tether is very closely associated with Bitfinex. Both share the same management & shareholders. The relation between Bitfinex and Tether has often raised questions in the crypto space.
On Friday, the 25th of April, the Attorney General of New York surprised many in the world of cryptocurrencies. The Attorney General issued a press release which announced that iFinex was under criminal investigation for fraud. It appears that Bitfinex might have used Tether's cash reserves to cover hundreds of millions in losses.
As per the press release:
"According to the filings, Bitfinex has already taken at least $700 million from Tether's reserves. Those transactions - which also have not been disclosed to investors - treat Tether's cash reserves as Bitfinex's corporate slush fund, and are being used to hide Bitfinex's massive, undisclosed losses and inability to handle customer withdrawals."
The response from Bitfinex was quick to come and was posted hours after the Attorney General's announcement. They claim that the reportedly missing funds are "safeguarded" and not missing.
As per the announcement:
"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."
The Bottom Line
The Attorney General could possibly uncover more murky business with Bitfinex & Tether or confirm it beyond allegations.
A few big questions are: Does the New York Attorney General have the jurisdiction to investigate a British Virgin Islands based company? What could be the outcome of the investigation?
So far, the markets took a bit of a dip due to the news. Bitcoin went from a high of $5,450 to a low of $5,200. It seems to be recovering with Bitcoin's current price hovering above $5,300.
It appears that even Tether hasn't lost much ground either. The stablecoin remains number 8 in the top ten cryptocurrencies by market cap. The Tether-Bitfinex scandal at this point in time might be seen as a storm in a teacup. Unless the Attorney General produces any evidence of wrong-doing these allegations are simply allegations. While this situation might escalate in the future, currently it is just one of the many rumors on Tether.
Written by Jonathan Ganor
Writer & cryptocurrency aficionado