250 million Tethers were printed on 18 May. Bitfinex’s most vocal critic has disappeared. What’s the deal?

Earlier this year, we published a series of articles about Tether and Bitfinex:

http://telegra.ph/Tether-could-be-guilty-of-perpetrating-a-huge-fraud-just-not-the-one-we-think-02-01

https://medium.com/@CryptoInferno/tether-cant-audit-won-t-audit-854703059a5b

https://medium.com/@CryptoInferno/itbitfinexed-ups-the-ante-6a14edfe5033

As you’ll remember, the early part of the year saw intense concern and speculation around Tether, the company that issued supposedly dollar-backed blockchain tokens, USDT. Leaked documents revealed that Tether and Bitfinex are essentially the same organisation, meaning that the exchange also has the ability to print the currency of its main pair — analogous to the New York Stock Exchange also being the Federal Reserve. The scope for abuse in this arrangement should be obvious.

Fractional reserve and the Bank of Tether

Indeed, this was precisely the concern around Tether-Bitfinex: that they were creating USDT out of thin air and using this fake money to buy BTC on their own exchange — artificially inflating the price of crypto and running a fractional reserve. @Bitfinex’ed (https://twitter.com/Bitfinexed), a vocal blogger, repeatedly accused them of exactly this, and a multitude of other shady practices.

Our own research suggested a slightly different picture. Instead of printing unbacked USDT and using the fake dollars to buy bitcoin, leaving the Tethers unbacked (and therefore introducing a systemic risk into the crypto world), we believe the evidence points to Bitfinex buying BTC with fake dollars and then selling these on other exchanges, retrospectively backing the USDT and profiting from the difference in price. In other words, USDT is fully backed with real dollars, but the way those dollars were acquired is fraudulent. If that’s true, the good news is that USDT isn’t about to implode and take the whole crypto world with it. The bad news is that anyone trading on Bitfinex is at the mercy of an organisation that is happy to profit at the expense of its users and will never be transparent about their business. Tether won’t allow an audit of their books because it will reveal what they’ve been up to — even if their USDT are backed, they got the money through means that were probably illegal.

All goes quiet

After a slew of activity in the bull run at the end of 2017, with hundreds and hundreds of millions of new USDT printed, Tether went quiet. No new USDT have been created since March, which itself was the first time in almost two months. But on 18 May, another 250 million USDT were created — right as the market was experiencing new panic and the price headed for a local low.

At the same time, blogger Bitfinex’ed has disappeared. His last tweet was almost two months ago. He received many threats, both physical and legal, and had recently hired in legal counsel to address them. There are suggestions he was doxxed, which would potentially put his life in danger. In all, this has been a very unpleasant episode.

It’s pretty odd that a stack of Tether should be printed right when the market is at its shakiest. BTC is teetering on the brink, looking set to plunge beneath a long-term support level. Is there an angle here for Tether, or is the demand really there? There are a few possibilities.

The demand is really there. Institutions are getting into bitcoin. Big money tends to be smart money, and knows the right time to buy. Buying now, even if there is still further to fall, is a better prospect than buying six months ago at $20,000. Bitfinex is playing games. It has often been noted that large print runs of USDT tend to precede uplifts in price. They are printing more money to attempt to kickstart the market out of its downtrend, or to squeeze a few more millions of dollars out of traders in a cycle of diminishing returns. The cycle is about to restart. The market is bottoming out, and Finex wants to be ready when it does. Printing 250 million USDT puts them in a good position to buy the dip they may believe is coming, if prices fall back towards $6,000. Then the new bullrun will begin, and Finex will own tens of thousands of bitcoins they bought at rock-bottom price, and can then sell at huge profit — probably netting another $250 million or more.

Note that these are not mutually exclusive options. Bitfinex has always been opaque about its books and about its banking relationships. We just don’t know where the money is coming from — whether USD is being deposited to create USDT, which is being used to buy BTC; or whether USDT is being created, which is being used to buy BTC, which is being sold for USD.

Bitfinex’s biggest critic may have been silenced, but nothing about their activities has been resolved satisfactorily.