There seems to be a storm brewing in the world of blockchain and cryptocurrency, fueled by the ongoing controversy and suspected misconduct of Tether, and Bitfinex.
The basic backstory involves Tether, the company responsible for the USD and EUR “tethers” (stablecoins that are designed to hold a pegged value of the fiat currencies they correspond to), and Bitfinex, the largest Bitcoin market in the world. Bitfinex is a majority stakeholder in Tether, and the relationship between the two companies has come under great scrutiny with accusations flying of market manipulation and fraud.
If you’re thinking that all of that sounds pretty bad, I’m inclined to agree. Some articles I’ve been reading have suggested that if any of the accusations are true, and they lead to a collapse in the validity of the USD Tether or Bitfinex, the resulting consequences on the entire crypto market could be severe — up to an 80% crash in the value of Bitcoin and other major cryptocurrencies.
So surely these companies are taking the accusations of fraud very seriously and doing everything they can to put them to rest… right?
Tether and Bitfinex have both been intent on operating under a cloud of secrecy. The only relevant information I have found so far coming directly from the companies in question is this “internal memo” that Tether released seeking to prove that the USD Tethers in circulation were all backed by real USDs in corresponding bank accounts (the entire Tether system depends on this as it is designed to guarantee a 1:1 exchange of USDs for USDTs). The only problem is that this document explicitly says at the very top, and several more times throughout the 6 page report:
“This information is intended solely to assist the management of Tether Limited (“management), and for management’s use, and is not intended to be, and should not be, used or relied upon by any other party.”
That means you and me, and anyone else looking for clear answers to simple questions regarding the solvency and honesty of the companies in question.
All of this is made worse by recent reports from CoinDesk suggesting that the auditor Tether did eventually hire to settle some of the outstanding issues has recently been “let go” by the company. No explanation, nor confirmation has been given by Tether or Bitfinex themselves, but no news is definitely not good news when it comes to fraud accusations and market instability.
Over the course of the next few days and weeks, I’m going to be diving into this topic further to see if any of the accusations targeted towards Tether and Bitfinex are true, and if so, what the likelihood of a market meltdown brought on by the collapse of either company might be.
In the research I’ve already done, I came across this report, which takes a statistical approach to trying to determine whether or not Bitfinex has been manipulating the crypto markets by “printing” fraudulent USDTs. Spoiler alert: the results do not bode well for the integrity of Tether & Bitfinex.
As of now, nothing can be said for sure. If you’re currently invested in Bitcoin, or any other major cryptocurrency, make sure you’re staying up to date on these developments so that you don’t get caught outside in a hurricane without a coat.
And as always, if you have any questions or comments, leave them below!