Bitfinex Suspends All Fiat Deposits as Bitcoin Premium Surges Over $100

Bitfinex USDT Premium on Bitcoin

Leading cryptocurrency exchange Bitfinex has “temporarily paused” or suspended fiat deposits in USD, Euros, British pounds (GBP), and Japanese yen (JPY). However, screenshots shared by people who trade on the British Virgin Islands-registered exchange appeared to indicate that “things are expected to resume in a week” or “normalize” within that time frame.

These latest banking problems have been reflected in the market's attitude to the exchange in the last few days. Looking at the title chart the bitcoin USD 'risk premium' on Bitfinex has increased to over $100 over other exchanges - market analysts believe this reflects the higher risk of trading on Bitfinex.

CryptoGlobe reached out to Bitfinex to learn more about the situation. The exchange replied:

Bitfinex has temporarily paused the depositing of fiat to customer accounts. We expect full trading capabilities to resume as normal within a week. All other service and business features on the platform remain unaffected and are operating as normal.

Banking Problems

Last week, reports had surfaced that Bitfinex, which operates from Hong Kong, may have been holding a large amount of its funds at Puerto Rico-based Noble bank - now looking for buyers as it is no longer profitable.

Noble bank is reportedly struggling to continue its operations because Bitfinex and Tether (USDT), its former customers, have parted ways with the financial institution. According to TheBlock’s research, Bitfinex had opened its accounts at HSBC, one of the world’s largest financial services organizations.

TheBlock’s researchers revealed that Bitfinex’s private account had been created under the name, Global Trading Solutions. Notably, HSBC might not have known that the account actually belonged to Bitfinex as it was opened under a different name.

Per the crypto analysis website, it “appears that [Bitfinex’s] private account” with HSBC “is no longer functional” and the exchange may not currently have “an active method of deposits as all USD, EUR, JPY and GBP deposits” have been suspended.

As CryptoGlobe reported, the cryptocurrency market experienced a massive selloff on Thursday during which Bitcoin (BTC) dropped over 5% within 30 minutes. The prices of other major digital currencies including Ethereum (ETH), Ripple (XRP), and Bitcoin (BCH) also dropped significantly.

Many market watchers are now wondering whether there might be some connection between the sharp decline in cryptocurrency prices and possible issues related to Bitfinex’s recent operations.

As CryptoGlobe covered, Bitfinex had responded to allegations (on October 7th) that it was either becoming, or was now, insolvent. Medium blogger ProofOfResearch had noted that his investigation of the exchange’s operations indicate that “Bitfinex is no longer solvent.”

Bloomberg also reported:

Noble Bank attracted attention in cryptocurrency circles earlier this year because of its willingness to work with Tether and Bitfinex, which was dumped last year by Wells Fargo & Co.

Meanwhile, many other market analysts suggested that there may be links to Tether’s recent issues, however, Bitfinex dismissed these allegations by stating people have "little understanding of what [insolvent] means and what they are generally talking about."

Bitfinex and Tether Fraud Allegations: Analysis, Market Response, Community’s Reaction

On Thursday (April 25), New York Attorney General ("NYAG") Letitia James announced that she had obtained a court order against iFinex (the operator of crypto exchange Bitfinex) and Tether (the issuer of the stablecoin of the same name) to stop these two companies from any "further violations of New York law." This article summarizes the main highlights of the facts as presented by the NYAG, how the crypto markets have reacted, and early responses from some prominent members of the crypto community on Twitter. 

The “Facts” As Presented by Assistant Attorney General Whitehurst’s Affirmation

According to the affirmation filed (at the New York Supreme Court) on Thursday by Brian M. Whitehurst, who is an Assistant Attorney General ("AAG") in the office of NYAG James, here are the main "facts" of the case against Bitfinex and Tether, as beautifully summarized by highly-respected New York-based crypto trader/analyst Alex Krüger (@krugermacro on Twitter):

  • "Bitfinex has a $850M 'hole" since late 2018"
  • "The $850M are 'stuck' with Crypto Capital, a third party payments processor used by Bitfinex"
  • "Crypto Capital argues the $850M have been seized by govt authorities of various countries"
  • "Bitfinex mgmt believes Crypto Capital's principals may be engaged in fraud"
  • "USDT were seemingly fully backed by USD until Nov/2018"
  • "Between Nov/2018 and Mar/2019, Tether transferred $625M to Bitfinex => Tether ceased to be fully backed by USD"
  • "In Mar/2019 Bitfinex 'returned' the $625M to Bitfinex"
  • "Since Mar/2019 Bitfinex is covering the hole with a $900M line of credit from Tether"
  • "The line of credit (which pays 6.5% p.a.) is secured by iFinex shares"
  • "Bitfinex has accessed $700M from the line of credit"
  • "Per the NY AG, Bitfinex and Tether are engaged in fraud"

And here are some other interesting observations from Alex:

Bitfinex's Response 

A few hours after the NYAG's press release came out, Bitfinex issued its response in the form of an announcement posted to its website:

"Earlier today, the New York Attorney General’s office released an order it obtained – without notice or a hearing – in an attempt to compel Bitfinex and Tether to provide certain documents and seeking certain injunctive relief.

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.

Bitfinex and Tether have been fully cooperative with the New York Attorney General’s office, as both companies are with all regulators. The New York Attorney General’s office should focus its efforts on trying to aid and support our recovery efforts.

Both Bitfinex and Tether are financially strong – full stop. And both Bitfinex and Tether are committed to fighting this gross overreach by the New York Attorney General’s office against companies that are good corporate citizens and strong supporters of law enforcement. Bitfinex and Tether will vigorously challenge this, and any and all other actions, by the New York Attorney General’s office."

Crypto Markets' Response

Naturally, this news has hurt the price of pretty much all cryptoassets with the main exception being stablecoins that are Tether's main competition, such as USD Coin (USDC) and TrueUSD (TUSD), which have gone up between 1 and 2 percent against USD. 

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ETH - 24 Hour CC Chart - 26 Apr 2019.png

USDT - 24 Hour CC Chart - 26 Apr 2019.png

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What is most interesting about the crypto markets' reaction is that Tether's price has barely been affected this time, unlike in October, when the USDT price reached a low of $0.86. The fair value of Tether is $0.75 at a minimum since Tether seems to be backed 75% by "currency and cash equivalents" and 25% by a loan collateralized by iFinex shares, which used to be worth around $10, but worth around $2 a few hours ago:

This means that the collateral of 60,000,000 iFinex shares might only be worth around $120 million at the moment, whereas the line of credit is for $900 million.

This tweet sums up nicely what one can say about Tether's current fair value:

Crypto Community's Reaction

Here are some of the more interesting early reactions from the crypto community on Twitter:


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