Bitfinex and Tether Hit by Subpoena from U.S. Regulators
One of the world’s largest digital currency exchanges may be under investigation from U.S. regulators. The U.S. Commodity Futures Trading Commission sent subpoenas to both Bitfinex and Tether back on December 6th, 2017, according to Bloomberg reports.
Bitfinex is one of the most popular options for purchasing and selling Bitcoin and various other digital currencies, and news that U.S. regulators are investigating the company could have ramifications for the market.
Tether, on the other hand, is a digital currency token that claims each unit is backed by around one U.S. dollar held in reserve.
“Tether Platform currencies are 100% backed by actual fiat currency assets in our reserve account,” said Tether, in their official FAQ. “Tethers are redeemable and exchangeable pursuant to Tether Limited’s terms of service. The conversion rate is 1 tether USD₮ equals 1 USD.”
Tether proves useful for digital currency traders that seek to quickly trade between bitcoin and traditional currencies. However, with around $2.3 billion USD (approximately $2.8 billion CAD) of tokens ‘in reserve,’ some members of the community question Tether’s claim that it has enough money to back the amount of tethers issued.
The relationship between Bitfinex and Tether
In the past, Bitfinex and Tether had a highly speculative relationship. As The New York Times reports, representatives from Tether and Bitfinex insisted that they are separate operations.
However, The New York Times further reported that this was challenged by findings in the Paradise Papers. The papers allegedly revealed that offshore law firm, Appleby, aided Bitfinex operators Phil Potter and Giancarlo Devasini with establishing Tether in the British Virgin Islands in 2014.
Fears within the community of an attempt to deceive investors on the part of either Bitfinex, Tether or a combination of the two are quite prominent. One critic in particular, who goes by the handle ‘Bitfinex’ed,’ published detailed accounts that allege Bitfinex is creating Tether coins that are not backed by U.S. dollars, in an attempt to raise the price of Bitcoin.
However, claims by this user are entirely unverified, with both Bitfinex and Tether denying the accusations. In regards to the subpoena, Bitfinex and Tether state that they are part of a routine legal process.
“We routinely receive legal process from law enforcement agents and regulators conducting investigations,” said an unnamed source in a statement to Bloomberg.
In the past, the digital currency market experienced fluctuations as a result of previous scandals involving Bitfinex and Tether.
On November 31st, 2017, a digital currency breach reportedly stole $31M USD worth of tokens from Tether. The effect was a temporary dip in bitcoin’s prices, but the digital currency’s value bounced back the following day.
Similarly, Bitfinex announced one of the biggest breaches of any digital currency exchange on August 2nd, 2016. 120,000 bitcoin (worth around $72 million USD at the time) was stolen from the exchange.
1/ With respect to the Tether situation, it's expected for CFTC to subpoena Bitfinex to investigate if there are any wrongdoings. The fact that the subpoena is in December 2017 and they have still continued issuing USDT is good news.
USDT is just like any other altcoin.
— Charlie Lee [LTC⚡] (@SatoshiLite) January 30, 2018
While not involved in the situation, Litecoin founder and digital currency advocate Charlie Lee took to twitter to challenge fears of lasting damage to the digital currency economy. Lee likened the current situation to a ‘self-fulfilling prophecy,’ saying that individuals cause prices to dip by selling due to fears that it will.
“This becomes a self-fulfilling prophecy,” said Lee, in a series of posts on Twitter. “People afraid of price crashing, sell their coins, and cause the price to actually crash. If it turns out that USDT [Tether] is not backed by real USD, the price will crash to 0. This is similar to what happened with BitConnct BCC. It should not affect BTC or any other altcoins. The reason why it does is because people are afraid of it affecting and they sell.”
We will keep you updated with further information as this story develops.
Image credit: Tether
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