Bitfinex Using Tether US Dollar Funds to Cover for Losses?

One of the things that the current market is looking for is for Bitcoin to reach $6K. Now that it was able to go beyond $5,600 in the last few days, many are looking forward to this day. In 2017, Bitcoin was able to reach near $20K level only to have a massive correction of more than 80%. Since last December, Bitcoin has continuously crawled its way back up.

But in just 24 hours, it seems that there are still some hurdles to Bitcoin’s climb towards $6K. Bitcoin along with other cryptocurrencies dropped after the legitimacy of Tether has been questioned once again. This isn’t the first time that Tether was questioned. In the past, there were questions whether or not the stablecoin is backed by US Dollar reserves in a 1 is to 1 ratio.

The entire crypto market dropped by $10 billion on Thursday. This was after the New York Attorney general accused Bitfinex, a crypto exchange and issuer of Tether, of hiding $850 million loss by using at least $700 million from Tether’s cash reserve.

Bitcoin’s price fell by more than 4% in just the last 24 hours. Also, the price of Ethereum and XRP also fell by 6% and 3% respectively. And as for Tether, the stablecoin dropped by 1%.

Handing Out $850 Million

According to the Attorney General, Bitfinex gave $850 million to an entity in Panama called Crypto Capital. And the worst part is that it wasn’t disclosed to the investors. Also, according to the Attorney General, the executives of Bitfinex allegedly “engaged in a series of conflicted corporate transactions”.

The attorney general’s office mentioned that “Those transactions—which also have not been disclosed to investors—treat Tether’s cash reserves as Bitfinex’s corporate slush fund, and are being used to hide Bitfinex’s massive, undisclosed losses and inability to handle customer withdrawals”.

Now, a court already ordered Bitfinex as well as Tether Limited that they can’t delete or allow others from deleting relevant documents that could track their communications.

False Assertions?

Bitfinex responded calling the court filings “riddled with false assertions”. Bitfinex also denied that they lost $850 million. According to them, the funds were actually “seized and safeguarded”. And in order to gain the trust of the public, “Bitfinex and Tether have been fully cooperative with the New York attorney general’s office, as both companies are with all regulators”. The website also added that “The New York attorney general’s office should focus its efforts on trying to aid and support our recovery efforts”.

Knock-on Effect

This probe can prove to be significant to the crypto market. If you are going to ask Charles Hayer who is the CEO of the digital currency comparison firm CryptoCompare, he believes that it triggers a knock-on effect.

Could it be possible that Bitcoin and the rest of the other cryptos will have a hard time getting back up? Though Bitcoin remains above $5,000, could it be possible that it is going to slow down its current momentum?

One of the things that make cryptos such a risky investment is because of its volatility. But with questions to Tether, arguably the most well-known stablecoin, it could also be a long way to go before the crypto market gets back to even near its peak in 2017.