Category Archives: bitfinex

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Law Firm Verifies Tether Backed By USD Bank Reserves

Tether has been under intense scrutiny recently after a study alleged that Tether was responsible for manipulating Bitcoin’s price during the rally to USD 20,000, and that Tether was possibly adding new coins into circulation with the purpose of pumping up Bitcoin’s price without backing them with USD, which would effectively be money printing. The Commodities Futures Trading Commission subpoenaed both Tether and Bitfinex who have the same CEO, Jan Judovicus van der Velde, possibly in relation to this matter.

Tether Limited retained the law firm Freeh, Sporkin & Sullivan (FSS) to verify that Tether really had USD in the bank to back all of its coins, and FSS found that Tether has USD 2.545 billion in banks that it controls, more than enough to cover the 2.538 billion Tethers in circulation during the verification on 1 June 2018.

While this is not an official audit since it was not done by an accounting firm, FSS is a reputable law firm that was founded by three former federal judges including former FBI Director Louis Freeh, and has decades of experience working with the United States government to ensure compliance and business integrity. FSS received permission to review Tether’s bank balances at any time it chose, and queried the banks on a random date so that Tether would not be able to put money in the bank just to pass the verification. That being said, this verification is only relevant for 1 June 2018, and is no indication of how much money Tether had in the bank before or after that date.

Tether’s General Counsel, Stu Hoegner, says it are not able to obtain an audit due to the nature of the cryptocurrency industry. Cryptocurrency is uncharted territory for auditors, there is uncertainty about how standard auditing rules apply to cryptocurrency and auditors don’t tend to make their own decisions on how the rules apply. Indeed, Tether used to have an auditing firm, Friedman LLP, but the business relationship fell apart. The last report from Friedman LLP in September 2017 indicated that Tether had USD 442.9 million in bank reserves, enough to back all of its coins at the time.

Tether is in discussions with accounting firms to conduct a full audit, but for the time being, the verification done by FSS was the most timely option to prove that Tether wasn’t committing fraud, in order to quiet down the media storm that started with the Bitcoin price manipulation study.

It is good news for the cryptocurrency markets that Tether is truly backed by USD bank reserves as promised since it is the 11th largest cryptocurrency by market cap, and is an essential mechanism for quickly transferring money between cryptocurrency and USD, with billions of USD of trading volume per day. Since the allegations against Tether helped drive cryptocurrency prices downwards, perhaps the market will be driven upwards now that these allegations have been found to be untrue.


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Crypto Community Critiques Bitcoin-Tether Manipulation Study

A study published earlier this week by economics professor John M Griffin concluding that the value of Bitcoin has been manipulated via Tether (USDT) has been rejected by portions of the cryptocurrency community, with the criticism that it had clearly not been peer-reviewed.

Findings of the study

Griffin claims in his research that Bitcoin has been routinely manipulated by supposedly USD-backed cryptocurrency USDT, while also implicating prominent trading platform Bitfinex. Much of the Bitfiniex management team overlaps with that of Tether, and the exchange site is the main conduit for USDT. In a statement given to Bloomberg, Bitfinex CEO JL van der Velde rejected any accusation of the company’s involvement.

A more detailed look into the findings of the original study was covered by Bitcoin News yesterday.

”Coordinated FUD”

Much of the backlash from the community online rejects it as a coordinated FUD attack, dismissing the analysis as ungrounded pessimism. Twitter user Whalepool, maintaining some 36,700 followers and describing itself as a “community of daytraders focused mainly on Bitcoin and other cryptocurrencies”, condemned the study as “a coordinated FUD attack against all of crypto”.

As reported by Finance Magnets, a Reddit user using the pseudonym Priest_of_Satoshi critiqued the study by noting that all it really proves is “people minting Tether are exceedingly good at ‘buying the dip’ and they probably bought about 50% of the dips”. Just like the stock exchange, those trading cryptocurrencies for maximum profits are required to note trends in order to buy and sell appropriately.

Another Twitter user pointed to Griffin’s work at a consulting firm specializing in fraud cases, as well as the fact that the SSRN library where the paper was posted does not require any form of peer-review before publication.

Tether’s actions ”exactly what should happen”

Matt Odell, who is described in his Twitter profile as working in “Bitcoin & distributed systems” with around 13,700 followers, said that the study neither proves price manipulation, nor lack of reserves. The falling price of Bitcoin sees people sell their holdings for USDT, initiating a USDT price rise which prompts Tether to issue more tokens so it again correlates with the price of one USD.

Odell describes Tether’s supply increase during market decline as “exactly what should happen”. He did note in November 2017, however, that the relationship between Bitfinex and Tether had “always been sketchy”, calling Tether “a centralized stop-gap solution until connections to fiat are unnecessary”.

I’ve said this countless times before, the fact that Tether supply increased during market declines doesn’t prove manipulation. That’s exactly what should happen if Tether is working as designed.

— Matt Odell (@matt_odell) June 13, 2018

Tether reserves

While Tether may be holding reserve supplies of its tokens in the same way responsible banks are required to, it cannot reveal where its money is held else it would face potential business closure. As some call for Tether to be more transparent in their processes, it is unable to categorically prove such reserves do or do not exist.


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Swiss Crypto Haven Zug to Pilot Blockchain Voting

Switzerland’s progressive blockchain center in Zug is going to conduct the first blockchain-based test vote later this month, reports Coinspeaker.

In 2016, Zug was the first city in the world to accept Bitcoin (BTC) as payment for certain municipality services, and also established ‘Crypto Valley’, a not-for-profit association supporting the development of blockchain and cryptography-related technologies and businesses.

One reason for Switzerland’s success as a center for blockchain and fintech, according to Swiss law firm MME, is the country’s openness to new business concepts and innovation. Marin Eckert MME partner said, “Swiss regulators are among the few that really have a deep understanding of the technology and how it works.”

Bitfinex, the fifth-largest cryptocurrency exchange by 24-hour trading volume, planned to leave its current base in Hong Kong and relocate its resources to Switzerland in March of this year.

The trial blockchain-powered vote will utilize Zug’s eID system voting on minor issues and the future of the ID system itself. Some of the municipal services that the public will be asked to vote on include annual fireworks displays, digital ID library lending, digital entry ID parking fees and electronic tax returns.

Owners must be in possession of a digital ID in order to place their yes/no votes which will be held on 25 June. The eID system was established in November 2017, but at this stage only includes 200 users who registered in a pilot for payment of municipal services last year.  Registered voters can get their voices heard by downloading the uPort app to smartphones and then submitting their vote electronically.

Zug is not alone in Switzerland in term of its blockchain- and cryptocurrency-friendly projects, and utility payment facilities, as it has a rival in the southern Swiss-Italian border town of Chiasso, which announced earlier this year that it planned to take Bitcoin to settle up to CHF 250 (Swiss francs equivalent to USD 265) of tax bills starting from January 2018.


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Bitfinex DDoS Attack Shuts Out Users

The Bitfinex cryptocurrency exchange has been experiencing a Distributed Denial of Service (DDoS) attack since the morning of 5 June 2018, according to an announcement on its Twitter account. The attack started this morning during unplanned maintenance due to problems with its trading engine, and is causing extreme load and poor performance on its servers.

Bitfinex is under DDoS attack. The DDoS attack started during earlier maintenance and has been ongoing since.

— Bitfinex (@bitfinex) November 26, 2017

It’s unknown if the problems with Bitfinex’s trading engine and the DDoS attack are related. The exchange was offline during the maintenance when the attack started. It is possible that the party or parties behind the DDoS attack wanted to hit Bitfinex at a time of weakness.

In a DDoS attack, hackers flood a victim with data from many different IP addresses, making the attack impossible to stop by blocking any single source. The goal is to make a website inaccessible by customers. The physical equivalent of a DDoS is blockading the front of a store with a group of people so customers can’t get in. While bad for business, the security of the cryptocurrency that Bitfinex holds does not appear to be compromised by a DDoS attack.

Bloomberg reports that the attack is preventing users from accessing the exchange. Bitfinex is the largest exchange in the world by trading volume between USD and Bitcoin, with trading volume on an average day of BTC 20,000 (some USD 150 million). Trading volume has floored today due to the exchange being offline during maintenance and the following DDoS attack.

Events like these can cause uncertainty and fear in Bitcoin markets but so far its price has barely reacted and is holding steady above USD 7,400.


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Crypto Exchange Bitfinex Demands User Tax Information

Prominent cryptocurrency exchange platform Bitfinex has given users until 24 May to confirm their tax status in order to continue using the platform’s services.

BVI legal requirements

According to a message account holders found when they logged into their Bitfinex accounts, as a company operating in the British Virgin Island (BVI), local laws now require that the tax information is collected. The details collected then may potentially be shared with the government of the users home country, should BVI law require it.

The message reads: “Pursuant to BVI law, we are required to obtain self-certifications from our customers in order to ascertain each customer’s tax residence… [we]may then exchange that information with the tax authorities of the customer’s country of residence, consistent with British Virgin Islands law, the U.S. Foreign Account Tax Compliance Act (FATCA), and the Organisation for Economic Co-operation and Development Common Reporting Standard (CRS).”

Centralization of exchanges

While it is crucial to provide legal regulations and safety for those trading cryptocurrencies, many have interpreted this as a step too far, particularly for those advocating the decentralized nature of blockchain trading. Similar criticism fell on peer-2-peer platform Localbitcoins, that announced earlier this month identification documents would be necessary if partaking in significant trading activity.

Unsurprisingly, backlash immediately ensued from the cryptocurrency community, with users taking to Twitter to rally Bitfinex account holders to withdraw their funds. One such user includes crypto personality Whale Panda, who wrote: “Bitfinex is now requiring users to give their tax information so that it can send it to BVI which will exchange it with your country’s tax authorities. We strongly disavow.”

Bitfinex is now requiring users to give their tax information so that it can send it to BVI which will exchange it with your country’s tax authorities.

We strongly disavow.

If you also disagree with this decision, peacefully protest it by withdrawing your money from Bitfinex

— Whalepool (@whalepool) May 17, 2018

Bitcoinist have reported that Bitfinex responded to the criticism by admitted that they were “deliberately targeting” specific users account details, although it is unclear the specifications with which those targeted are being held to.


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