Inside Sources: US Justice Department, CFTC Are Coordinating Investigations into Tether, Bitfinex's Operations

  • US Justice Department and the US Commodities Futures Trading Commission (CFTC) are coordinating crypto-related investigations. 
  • Both US authorities are looking more carefully into the alleged crypto market manipulation involving Tether's USDT and digital asset exchange, Bitfinex.

The US Department of Justice (DoJ), a federal executive department law enforcement agency of the American government, has reportedly started looking more carefully into the alleged crypto market manipulation involving Tether Ltd. and digital asset exchange, Bitfinex.

Stablecoin USDT Used To Buy And Sell At Opportune Times

As many digital currency market analysts suspect, traders with inside information might have been responsible for pumping the bitcoin (BTC) price to record-level highs towards the end of 2017.

These traders may have used Tether’s stablecoin, USDT, to buy and sell bitcoin at opportune times based on insider information, thus illegally moving cryptocurrency prices - according to three sources familiar with DoJ’s extensive probe into the various exploitative activities in the digital asset market.

In addition to the DoJ’s investigation, the US Commodities Futures Trading Commission (CFTC) had subpoenaed Tether Ltd. and Bitfinex on December 6th, 2017. According to sources familiar with the matter, the CFTC and the DoJ are now coordinating their investigation of the activities of both firms.

Massive Crackdown Launched In May Of 2018

Moreover, other regulatory authorities such as the North American Securities Administration Association (NASAA), an international body formed to ensure consumer protection, had initiated the largest cryptocurrency crackdown in history (starting in May of 2018).

Notably, NASAA launched 70 separate investigations (toward the end of May) into a number of potentially fraudulent crypto-related investment schemes. At the start of the wide-reaching probe, Joseph Rotunda, the Director of the Enforcement Division at the Texas State Securities Board, had said that the digital asset market is “saturated” with scams.

Rotunda’s investigation team had joined over 40 state and provincial authorities from Canada and the US to launch the massive crackdown on fraudulent activity in the crypto space. While these investigations involved many different types of crypto scams, particularly those associated with initial coin offerings (ICOs), regulators may be focusing their efforts more toward larger market participants such as Tether and Bitfinex.

Buying Bitcoin At Key Moments

JL van der Velde, the CEO of Tether Ltd. and Bitfinex (whose LinkedIn profile notably does not mention that he is the chief executive at Tether), has previously denied being involved in any type of market manipulation.

At present, it is unclear whether authorities are only looking into the potentially exploitative trading activity involving Hong Kong-operated Bitfinex, or if regulators also suspect that the exchange’s senior executives may have been involved in illegal conduct.

As mentioned, some crypto market analysts have alleged that large amounts of USDT are used to purchase bitcoin at key moments (based on insider information), particularly when its price dips, in order to unfairly profit off of arbitrage and market fluctuations.

Error in Time-Locked Bitcoin Contracts Allows for Miner 'Fee-Sniping'

Michael LaVere
  • Crypto researcher 0xb10c discovered an error in bitcoin "time-locked" transactions that could be used as an attack vector.
  • Miners can take advantage of the program to carry out "fee-sniping" and steal funds from one another. 

Users have discovered an error in bitcoin “timelocked” contracts that could potentially allow miners to steal BTC from one another. 

Anonymous crypto engineer 0xb10c reported discovering more than one million “time-locked” transactions made between September 2019 and March 2020. In a post, 0xb10c detailed how these special bitcoin transactions were not being accurately enforced by the network. 

As opposed to normal transactions, time-locked transactions prevent recipient bitcoin from being accessed after sending. Users must wait for a specific number of blocks to be added to the network in ten-minute intervals before gaining control of their bitcoin. 

0xb10c claimed the errant time-locked transactions provided an attack vector for miners to steal transaction fees  from one another via “fee-sniping.” According to the engineer, the backlog of time-locked transactions were being purposefully designed for a “potentially disruptive mining strategy” involving the theft of miner fees. 

In an interview with CoinDesk, 0xb10c said time-locked transactions represented a “low-priority” problem at present that could eventually balloon to involve the wider network. He explained that fee-sniping would become more lucrative in a few years as the majority of miner income shifts towards transaction fees. 

He continued, 

A fix for this has been released in early 2020. However, it will take a while before all instances of the currently deployed software are upgraded.

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