Bitfinex and Tether Fight Back: 'No Ongoing Fraud', 'No Victims'

iFinex, the parent company of Bitfinex and Tether, has recently issued its official court response to the fraud allegations made against it by New York’s Attorney General, which accused the crypto exchange operator of an $850 million ‘cover-up.’

According to the document, iFinex moved to vacate the court order alleging the firms covered up an $850 million loss of corporate and client funds, arguing the order was based on “incomplete or incorrect facts and the wrong legal standard.”

In its document, Bitfinex and Tether argued the NYAG didn’t “even try to explain how tethers qualify as securities or commodities covered in the Martin Act.” The Act would establish the regulator’s authority over both companies. To this, iFinex added:

This is backwards: the Attorney General should not be afforded the drastic remedy of a preliminary injunction, or an order requiring the Respondents to address blunderbuss document demands, without establishing the basis for its authority to even regulate in this sphere.  For this reason, the Court should vacate the April 24, 2019 Order in its entirety (including as to the discovery aspects).

Moreover, Bitfinex and Tether argued that there was “no ongoing fraud, and no “victims” in need of drastic remedy of an injunction to protect them.” It adds Tether disclosed its reserves could “consist of loans to affiliates, and did so before the line of credit transactions the Attorney General challenges.”

As covered, Tether quietly diluted its USD reserve claims in March of this year, in a move that drew criticism from the cryptocurrency community, as it seemingly meant the company didn’t have a dollar in its reserves for every USDT token in circulation, while maintaining that “1 USD₮ is always valued by Tether at 1 USD.”

The document further notes USDT holders have been free to “redeem or sell their tethers at any point (including now), and that Tether itself has “ample reserves to meet the demand.”

Bitfinex, Tether Claim NYAG Misused Term “Investor”

The cryptocurrency exchange operator further argued it doesn’t have to inform its users of all matters they would “find material” as a private company, and that the NYAG misused the term “investor” when referring to Bitfinex and Tether’s customers.

These, the document adds, aren’t “entitled to disclosure” as if they were investors. It reads:

The Attorney General’s pervasive misuse of the term “investor” gives the false impression that the Attorney General is acting on behalf of shareholders of Bitfinex and Tether, who of course are owed certain duties of disclosure about their ownership stake.  But here the Attorney General’s ostensible constituents are customers of Bitfinex and Tether, who are not investors, and who not entitled to disclosure as if they were.

In the document, the cryptocurrency firms further argue that a preliminary injunction wouldn’t “protect anyone,” but claim it would instead cause “great disruption to Bitfinex and Tether.” The document argued NYAG isn’t trying to maintain a “status quo” as it claims, but is instead “attempting to dictate how two private companies may deal with one another and deploy their funds.”

Bitfinex Suffered a ‘Significant’ Impact

iFinex further noted that the “impact on Bitfinex” caused by the NYAG’s fraud allegations has been “significant.” Per the document, since the NYAG’s report became public “about 30,000 bitcoin worth about $170 million, has come out of one wallet,” and “about 1 million ether, has come out of the other wallet.”

Also read: Bitfinex Shareholder Starts Accepting Pre-Orders for Exchange's Token Sale

This, as customers have been withdrawing their holdings from the cryptocurrency exchange. Notably, iFinex blames the NYAG’s move for halting a cryptocurrency market rally, as bitcoin’s price was recovering up until April 24.

Per the document, the rally was halted by the case, resulting in “an approximate loss of $10 billion across dozens of cryptocurrencies” within one hour of the case becoming public.

Bitcoin Proponents Debate a Potential Hard Fork for Inflation

  • Bitcoin Advisory founder Pierre Rochard is asking bitcoin community to consider the implementation of inflation.
  • Rochard argues that transaction fees alone may not be enough to sustain miners in the future. 

Pierre Rochard, founder of consulting firm Bitcoin Advisory, has addresed a debate in the bitcoin community over whether transaction fees will be high enough to support the network’s continued use. 

Bitcoin Inflation Debate

According to Rochard, who is also a self-proclaimed proponent of BTC’s scaling solution lightning network, the community must question whether transaction fees alone will be enough incentive for miners in the future. As outlined in the original white paper, bitcoin’s total supply is limited to 21 million coins. 

While the final BTC is not expected to be minted until after the year 2140, the block reward will continue to decline over the coming century. Miners, who facilitate transactions and secure bitcoin’s network, will have to rely more upon transaction fees as a source of income, as BTC rewards continue to fall.

Some are now arguing that bitcoin may need to introduce perpetual inflation to remedy the situation, which would mean altering the original 21 million BTC total supply.

Rochard said, 

There’s an open question of will transaction fees be high enough – or in the aggregate total – enough to provide transaction finality...will bitcoin have to hard fork in inflation?

The Bitcoin Advisory founder asked the community to consider the state of altcoins, many of which operate on an inflationary protocol. Rochard acknowledged that confirmation bias may be clouding judgment in regard to bitcoin’s managed development and that the potential for inflation should at least be considered, 

There’s confirmation bias. We’re all very bullish on bitcoin, I certainly am, and so we want to pick out arguments and facts that support our position rather than trying to see all sides of a debate and have a more balanced view. Or at least have some level of uncertainty and self awareness in how much support we actually have for our arguments.

Future of BTC

Rochard pointed to an article written in 2015 by Silicon Valley entrepreneur Ryan Selkis, under the name TwoBitIdiot, arguing that bitcoin needed inflation despite the controversy of the idea. He also pointed to the increase in block size from 1MB, which at the time was considered blasphemous to bitcoin’s protocol, as analogous to the idea of introducing inflation. 

Rochard concluded that the bitcoin community has “a good 10 to 20 years to argue about it,” before inflation becomes a pressing issue. 

 

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