Bitfinex Accused of $850 million ‘Cover-up’ by New York Attorney General

Bitfinex, a leading cryptocurrency exchange and its affiliated stablecoin provider Tether are being sued by the New York State Attorney General (NYSAG). Bitfinex was accused of losing $850 million and then using funds from Tether to cover-up the loss.

According to a press release issued Thursday (April 25) Attorney General Letitia James has obtained a court order to stop iFinex Inc the company controlling both Bitfinex and Tether from operating in New York. The OAG said that an investigation is ongoing and seeks to identify “fraud being carried out by Bitfinex and Tether”.

In the court order Attorney General James stated:

Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds

The New York Attorney General’s office stated that they have reason to suspect that New York traders are still using the exchange, despite Bitfinex saying in 2018 it would no longer serve these residents.

Bitfinex's struggle to retain a suitable banking partner in the past year has been well publicized. The lawsuit alleged that the company partnered with Crypto Capital Corp., a Panama based payments provider. Furthermore, the OAG alleged that no contract was signed, despite the huge sums of money entrusted to Crypto Capital Corp.

Bitcoin Price Falls 5%

CryptoCompare’s latest exchange review revealed that Tether accounted for over 80% of Bitcoin trading, up from 70% in February. The market's dependence on Tether has been a cause of concern for many in the industry and may well explain the significant impact on Bitcoin's price, which has fallen over 5% in under an hour.

Despite the launch of several new stablecoins in the last year, Tether's dominance has not been challenged, and the leading stablecoin still accounts for 98.7% of Bitcoin’s trading volume against four top stablecoins – USDT, USDC, PAX, and TUSD. It remains to be seen whether this court order will deter the market from using Tether as its stablecoin of choice.

UPDATE: Bitfinex's Response

Around 02:50 UTC on Friday (April 26), sent out a tweet that linked to the following announcement, which was published on 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."

Bullish Bitcoin Investors Are Ignoring Institutional Bears

Neil Dennis

Bitcoin investors remained positive this week, despite data showing that bearish bets on the futures market had increased during the previous week.

Positioning data on CME Bitcoin futures showed that institutional managers held 14% more short positions in the seven days to Friday, June 21, than in the week before, according to the Commodity Futures Trading Commission (CFTC).

Futures trade allows investors to back an asset's losses as well as gains: short positioning means backing an asset to fall in price over a defined period.  The increase in the CFTC short position data on CME Bitcoin futures, therefore, would indicate growing bearishness by the larger institutional players.

Playing it by the Charts

They may have been playing it by the charts. The previous two tops occured in mid-May when the price of Bitcoin reached a high of $8,352 before falling back nearly $1,000, and then at the very end of May reaching $9,066 before falling back to $7,807.

Bitcoin's price performnace

The chart shows that in the week to June 21, when shorts on CME Bitcoin futures grew, Bitcoin pushed up above $10,000, in a chart pattern that might have led many to believe another pullback was imminent.

This drop, predicted by many institutional investors, never came, however, and private investors continued to back the Bitcoin rally. Indeed, the CFTC report showed that smaller investors continued to hold more long positions - backing the continued rally: investors with fewer than 25 Bitcoin futures contracts showed four times as many long positions than shorts.

Short Covering

This may help explain how the rally of the last couple of weeks gained momentum, as those on the institutional side joined the buying to cover their short positions.

Tanya Abrosimova, analyst for FXStreet, said:

Many experts believe that at this stage Bitcoin is driven by FOMO (fear of missing out), while the market repeats the situation of late 2017.

It is also likely that Facebook's announcement about the lauch of its Libra cryptocurrency caught the institutional shorts on the wrong side of the market. Since the Libra announcement on Tuesday, June 18, Bitcoin has gained more than 30%.

Abrosimova added:

Looking technically, Bitcoin has been growing strongly for eight days in succession, which is the longest period of uninterrupted growth since December 2017. As BTC/USD is trying to take out a new barrier at $12,500. Once it is out of the way, the next bullish target of $13,000 will quickly come into view.