The entire cryptocurrency market cap fell by $8 billion overnight in light of the ongoing Tether and Bitfinex scandal.

In a press-release published by the New York Attorney General’s office, it was alleged that Bitfinex had “engaged in a cover-up to hide the loss of $850 million in client and corporate funds”.

“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds,” said Attorney General Lelita James. “New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”

Bitfinex Respond to New York Attorney General's Actions https://t.co/snxHU2yeb5 — Bitfinex (@bitfinex) April 26, 2019

Bitfinex issued a response to the court order, claiming that the filings were “written in bad faith and riddled with false assertions”.

The exchange wrote in an official statement: “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”.

The markets reacted impulsively to the news, with Bitcoin falling from $5,500 to $4,950 before finding a level of support, while Ethereum went from $165 to $150.

The move to the downside comes on the back of a bullish month for the cryptocurrency asset class. Bitcoin tested new yearly high in April by rising to $5,650, but the latest price-action to the downside will have negative implications on the potential of entering the first phase of a bull market reversal.

More than $215 million in long positions were liquidated on derivatives exchange, BitMEX, during last night’s fall from grace, with several analysts suggesting that this could be a catalyst for further downside action over the coming weeks and months.

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