Bitfinex $850 Million Loss Cover-Up: Fact or Fiction?

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Cryptocurrency Exchange has been accused by the Attorney General’s office in New York of hiding an $850 million loss by covering it up with Tether funds. The AG, Leticia James stated that the exchange had transferred the amount to a Panamanian firm Crypto Capital Corp, which subsequently lost all the funds. In a further statement to the effect of the lawsuit, the AG said that the company was in contravention of the law in connection to activities that could have potentially defrauded the New-York based crypto investors.

The loss was not communicated to investors and the judicial office was of the opinion that it was their duty to protect investors (both individual and corporate) since the operators of the Bitfinex trading platform that also controls the Tether virtual currency. In the second quarter Q2 of 2018, the exchange was unable to process withdrawals and officials were accused of fraudulently transferring funds that could have mitigated the risk of such an event onto Tether’s balance sheet and still carried on representing that the Tether units were fully backed by US dollars, which was not the case. At the time, a good number of customers had launched complaints with the exchange demanding to know why their withdrawals were taking so long to process, to the effect in which Bitfinex released a statement that they were working to implement an efficient system to be able to process all the transaction quicker and more effectively.

Bitfinex however, refuted the claims by the AG’s office and stated that they were instituted in bad faith and false assertions. In the face of the lawsuit, the court ordered the exchange to stop all dissipation of US dollars backing the Tether tokens and to provide all documentation that is required for the investigation. Officials at Bitfinex released a statement committing to this issue being resolved as soon as possible and assured their users that there was nothing to worry about.

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The company gave a vague answer however as to what exactly happened to the funds in question after saying that the amounts of crypto in question have just been ‘seized and safeguarded’ and did not provide the identity of who did the seizing and safeguarding.

It is worth noting however that the exchange moved $89 million worth of Bitcoin and $96 million worth of Ethereum from its cold wallets in the past few days. This worries crypto users who have accounts with the exchange as they are not sure how badly the trading volume will be affected, or if Bitfinex will be able to repay the loans. Maybe this is what prompted the subpoena from US regulators to have an unofficial audit of both the exchange and Tether, since they are both independent entities to ascertain if they had adequate dollar backing.

In the event that customers lose confidence in the stable coin it will inevitable affect the price of Bitcoin as well. Former Wall Street analyst Tony Vays, stated that if Tether blows up, it could potentially cause a short term panic in the crypto sphere and cause customers to resort to quickly offloading their Tether reserves and leave the exchange. As it is, Tether market cap has dropped by 1.69% in the past 24 hours.

 

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