by Bobby Brown · 05/01/19 0
As you might now, we at CryptoMedics have always emphasized to be suspicious about Tether and we believe it is safe to stay away from it. Here is what we think about the recent happenings.
On 25th April 2019, Letitia James, the New York Attorney General (NYSAG) announced that she had a court order restricting Tether, the issuers of the USD backed coin tether (USDT), and iFinex, the operator of the Bitfinex exchange from "further violations of the New York law".
In her statement, State Attorney General Letitia said the iFinex Inc. had been raising client and corporate funds to hide an $850 million loss that had occurred mid last year.
On 26th, the NSYAG's office followed up the earlier announcement with another statement indicating they had obtained an order compelling iFinex and Tether to release certain documents to them.
The NYSAG's statements had uncovered dubious dealings that have been going on in iFinex and Tether. The statements revealed that by mid-2018, Bitfinex had had $850 mln missing. The $850 mln is apparently being held by Crypto Capital, a third party payment processor that Bitfinex used. Crypto Capital, claimed that the money had been seized by authorities in various countries. Bitfinex's management, however, suspected that principals of Crypto Capital may have been engaged in fraud.
How is Tether involved in the saga?
By November 2018, USDT was supposedly backed by USD. The cover-up, however, crumbled when Tether transferred $625M to Bitfinex. In March 2019, Bitfinex 'channeled back' the $625M to Bifinex.
And then, in March 2019, Tether extended a $900M credit line (secured by iFinex shares) to Bitfinex, with which Bifinex was covering the gaping hole in their finances. Bitfinex has used up $700M from the credit line. As per NYSAG, Tether and Bitfinex are clearly misleading their investors.
In response to the NYSAG's court order, Bitfinex has released a statement saying, "The New York Attorney General's court filings were written in bad faith and are riddled with false assertions, including the purported $850 million 'loss' at Crypto Capital,"
Bitfinex, has also made it clear that they are "committed to fighting this gross overreach by the New York General office".
Crypto market's response
The news had naturally hurt the prices of almost all crypto-assets, with only exceptions being Tether's main competitor stable coins like TrueUSD (TUSD0 and USD coin (USDC) that had risen by 1 to 2 percent against USD.
How are cryptocurrency investors and opinion-forming accounts reacting?
Here are interesting early twitter reactions to the Bitfinex/Tether saga:
James Todaro@JamesTodaroMD said:
"Bitfinex announces that the $850M has been seized. Who knows when funds will be released (years?).
Obviously this wasn't announced earlier bc of the effects it will have on Bitfinex & the mkt. This is not going to play out well. Don't be fooled that this won't affect prices."
Jesse Powell@jespow Replying to BTCVIX
"Unfortunately, fiat banking is a black box. We don't know if there's a problem at CC or at the bank. No doubt BFX still carries the USD on the balance sheet but if it's frozen/seized, who knows how many years it could take to become recoverable. Gox still going 5+ years."
What does this Bitfinex/Tether storm mean to cryptocurrency investors?
Bitfinex has pretty much made it known that they would no longer cooperate with New York Attorney General's office. Their defiance will only result in arrest warrants being issued against persons involved in the Tether/Bitfinex saga.
NYSAG is also likely to expand the previous restrictions on funds being moved to an outright cease and desist. Exchanges should be delisting Tether by now because if they don't, the order will expand to crypto exchanges being prohibited from trading Tether.
And because Tether/Bitfinex has made it clear they would defy the NYSAG's office, federal authorities will certainly zero in on them soon, and from there it will be a blood path.
This is the best time to jump off USDT's sinking ship because the situation can only get worse. Bitfinex/Tether have had clouds hanging over them for years, and now with this inevitable face-off with federal agencies, their story can only end tragically.
Today is the best time to exit Tether completely. And if you're trading on an exchange that uses USDT, move it now, not tomorrow. There are plenty of alternatives.