As Bitcoin’s price has set staggering new all-time highs over the past couple of weeks, many cryptocurrency enthusiasts have become convinced there’s something nefarious beneath the sudden growth. As major financial groups prepare to launch Bitcoin futures trading, many think the price could be being inflated by big-money investors hoping to make a killing by shorting a Bitcoin crash.
Another rumor that has been gathering steam involves Bitfinex, one of the internet’s largest cryptocurrency exchanges, and US Dollar Tether.
CoinDesk recently reported that Bitfinex have hired the law firm Steptoe & Johnson to take legal action against what it says are unfounded accusations designed to manipulate markets. Although Bitfinex’s statement doesn’t name any individuals directly, it’s been heavily implied who this action is targeting. The same CoinDesk article quotes Ross Torossian, a PR specialist hired by Bitfinex and Tether, as saying, “I think you can infer who”.
Every forum post and news article on the evolving situation points to the same target: a blogger using the handle Bitifinex’ed, who has posted lengthy articles on Medium that go as far as accusing Bitfinex of being a Ponzi scheme.
These are very heavy claims and its easy to see why Bitfinex would be motivated to take legal action over them. It’s far from unusual for articles to attack different players in the cryptocurrency space. Unfounded claims and accusations have been thrown at almost every coin, development team, and exchange at one time or another. These types of attacks have become so commonplace that they’ve earned their own acronym – FUD, for fear, uncertainty, and doubt.
The cryptocurrency market is both hyper-competitive and almost completely unregulated. Huge amounts of money are exchanging hands for digital coins and tokens. Value in the cryptocurrency space is almost completely determined by trust. FUD erodes trust, harming one project so that another can prosper.
Bitfinex’ed’s articles have been widely distributed and they’ve created a lot of negativity around Bitfinex and Tether. The articles have been so widely shared that they’ve received coverage in the New York Times, while every Reddit and forum post referencing Bitfinex or Tether attracts comments warning about the mounting controversy.
The appearance of a highly critical article in a major mainstream publication like The New York Times shows that this situation is escalating. Among the many points made in The NYT article are references to the recent Paradise Papers leak. The Paradise Papers showed that the Bitfinex’s chief strategy operator Phil Potter and chief executive Jan Ludovicus van der Velde had set up Tether in the British Virgin Isles in 2014.
Tether is supposed to add liquidity to the cryptocurrency market by allowing direct transfer to a coin that is directly linked to a supply of US Dollars. The value of one USDT is ‘tethered’ to the value of one USD.
Among the most serious accusations being thrown at the team behind Bitfinex and Tether is that USDT isn’t actually being backed 1:1 by US dollars.
Both Bitfinex and Tether have been targeted by multimillion dollar hacks, including a recent hack which was said to have captured $30 million of USDT. But this latest hack is less severe than a hack which captured 120,000 Bitcoin last August. The stolen Bitcoin was worth more than $60 million at the time, and would now be worth magnitudes more than that. The loss was spread out across all Bitifnex’s customers, with the exchange swapping 36% of funds held in accounts on its platform for debt tokens.
Fortune is another mainstream media entity which has weighed in on the mounting controversy. The Fortune article repeats accusation which have been thrown at Bitfinex and Tether by Bitfinex’ed and various Reddit and forum posts. Most of the concern surrounds the rate at which new US Tether is issued, with 50 million being issued in week in November. This massive influx of Tether coincided with a spike in Bitcoin’s valuation.
Litecoin creator Charlie Lee summed up the worries of many in a Twitter post on November 30, stating: “There’s a fear going on that the recent price rise was helped by printing of USDT that is not backed by USD in a bank account.” The same Tweet ends by urging Tether and Bitfinex to assuage fears by conducting a complete audit of their accounts.
There's a fear going on that the recent price rise was helped by printing of USDT (Tether) that is not backed by USD in a bank account.
— Charlie Lee [LTC] (@SatoshiLite) November 30, 2017
Other aspects of the mounting controversy include Bitfinex’s banking difficulties. American bank Wells Fargo and four banks based in Hong Kong and Taiwan moved in April to freeze or suspend accounts and transfers related to Bitfinex, making it difficult for customers to withdraw money.
There are fears that this mounting controversy could result in a collapse similar to the Mt. Gox disaster in 2013, which led to a years-long depression in the value of Bitcoin.
With Bitcoin’s value now riding higher than ever and Bitcoin futures about to bring cryptocurrency into the financial mainstream, things could get extremely messy in the near future if the questions over Bitfinex and Tether aren’t resolved.
His background includes a BA in English with Film from King’s College London and a Master’s degree in Applied Linguistics. He has previously worked at universities in Japan and the Netherlands.
Christopher has more than ten years’ experience writing on a wide range of topics. He has a strong interest in cryptocurrency and the development of blockchain technology, with his writing now focusing on exciting new projects and trends within the cryptocurrency space.
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