Bitfinex: The Plot Thickens (and So Does the Bitcoin Price Premium)

Bitfinex has fired back at New York regulators over allegations that the exchange co-mingled corporate and client funds to mask hundreds of millions in losses. In a post that first appeared on April 26, Bitfinex criticized the New York Attorney General’s office for attempting to strong-arm the exchange into produce certain documents without notice or hearing.

The Case against Bitfinex

As Hacked reported last week, the New York regulator is pursuing legal action against iFinex Inc., the operator of Bitfinex, for using Tether (USDT) to hide the loss of $850 million. Tether is a controversial stablecoin that has been under federal scrutiny since 2017 over its alleged use in pumping the price of bitcoin during the bull market. Prior to last autumn, Tether had failed to provide an audit of its accounts, leading many to speculate that it didn’t really hold the dollar reserves it claimed. (As a stablecoin, Tether must maintain $1 U.S. dollar for every USDT token issued.)

It was later revealed that Tether and Bitfinex shared the same chief executive, leading to accusations that the apparent bitcoin price pump was taking place on Bitfinex. Read more: Tether Mystery Grows Following Latest Spike in USDT Circulation.

According to the New York Attorney General’s office, Bitfinex is actively using USDT “in a cover-up to hide the apparent loss of $850 million…” As such, it has requested that the exchange cease all operations in the state of New York.

Tether has tried to come clean on its reserve status. Last November, it confirmed a new banking relationship with Deltec Bank & Trust, a Bahamas-based financial institution. At the time, its balance stood at more than $1.8 billion.

Bitfinex Fires Back

On Friday, Bitfinex issued an official response accusing the New York Attorney General’s office of acting in “bad faith,” adding that it and Tether have been “fully cooperative” with the regulator.

“The New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million “loss” at Crypto Capital,” the statement read. “On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded. We are and have been actively working to exercise our rights and remedies and get those funds released. Sadly, the New York Attorney General’s office seems to be intent on undermining those efforts to the detriment of our customers.”

Bitfinex has reassured its customers that the exchange and Tether are “financially strong” and that it plans to fight the regulator’s legal actions.

Bitcoin Premium Surges

One of the prevailing themes of the crypto bear market was the large premium one needed to pay to buy bitcoin on Bitfinex compared with other exchanges. That premium declined significantly in the last few months as the market bulls reasserted their control.

The latest controversy has led to another sharp spike in the so-called Bitfinex premium, only this time the price spread is much higher than during the bear market. At the time of writing, Bitfinex was quoting the price of BTC/USD at $5,413.30. That’s more than 5% higher than the price quoted on Coinbase, Bitstamp, Bittrex and Gemini.

Bitcoin price premium. | Source: TradingView.

The cryptocurrency market experienced a broad pullback last Thursday, stabilized over the weekend and has since reversed course once again. The combined value of all cryptocurrencies in circulation has just fallen below $168 billion with bitcoin’s dominance rate surging to the highest level of the year.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi