The press release

Tim Swanson posted the following amazing press release on Twitter last night:

.@bitfinex's PR agency is @5W_PR. They are currently emailing reporters about a forthcoming audit from @friedmanllp. There are a number of red flags in the email, such as the fact that there is no public management page for either Bitfinex or Tether. pic.twitter.com/9pAAtqMBvr — Tim Swanson (@ofnumbers) December 1, 2017

Here’s the text. Followers of crypto, take a very small drink (it’s still early) for every statement that makes you go “wait, what?”

An entire cryptocurrency ecosystem has emerged since Bitcoin first launched in 2009. More than 1,000 cryptocurrencies exist, and companies have raised approximately $4 billion in initial coin offerings this year alone. Yet most of this ecosystem was known only to a hyper-niche community of crypto-enthusiasts and investors until recently. Not until bitcoin’s recent run-up in value did the cryptocurrency industry breakout into mainstream awareness and attention. Now, everyone is figuring out how to make money in crypto. To make money, as with any currency or commodity, exchanges are required to convert from one cryptocurrency to another, and to fiat. In this virtual world of crypto, Bitfinex has emerged as the world’s largest cryptocurrency exchange, handling more than $54 billion in volume over the past 30 days alone.

In the second paragraph, that third sentence shouldn’t reasonably be following the second — the glaring problem, after all, is that Bitfinex is famously not one of those exchanges, as they haven’t been able to reliably convert cryptos to conventional currency since April. (Though apparently they recently found a banking partner in the EU.)

With record trading volume in the third quarter of this year, Bitfinex placed their priorities and resources where they belong: toward building what their customers want. To keep up with its exponential growth, Bitfinex focused on improving its platform stability, scalability, and reliability. These efforts allowed the company to keep up with the demand for its services, which now total in the billions of dollars each day. This growth did not come without growing pains. I will be the first to recognize that Bitfinex’s business decision to focus on its product came at the cost of effective and consistent communications with key stakeholders (and the media). Keeping up with growth and communications is a challenge for any fast-growing company, even more so for a company operating in the still undefined and evolving cryptocurrency space.

To be fair, Phil Potter from Bitfinex is a good and clear speaker, reaches out a lot, goes on podcasts and so on. I spoke to him for the book around early July; I didn’t use any of his quotes in the Bitfinex section, but I can say that no factual statement he made to me then has been shown to be incorrect that I know of.

Crypto is, in some ways, not unlike the budding cannabis industry in the U.S. – one which has seen tremendous growth. In 2016 alone, legal recreational and medical cannabis sales totaled nearly $4.5 billion, almost as much as total ice cream sales ($5.1 billion). Yet huge challenges and uncertainties remain for the industry, as the private sector and government work out how these sales will be regulated, legislated, and financed. As with the cannabis industry, traditional banks and regulators are trying to figure out how to handle the growth of the crypto market. Many banks won’t accept money from cryptocurrency exchanges, including Bitfinex. As a result, Bitfinex did lose a number of U.S.–based banking relationships but was able to maintain and add to its roster of banking partners around the world, providing the vast majority of its customers with a diversified and resilient banking network to provide consistent liquidity.

The only similarity, of course, is that neither marijuana dispensaries nor Bitfinex can get reliable banking. (Other large crypto exchanges dealing in US dollars somehow can, though.)

On November 19, $30,950,000 Tether tokens were stolen by the malicious actions of an external hacker or hackers. Despite the hack, no customer funds were stolen, and Tether is working closely with law enforcement to investigate the breach. Unfortunately, hacks have become all too common in finance, with the likes of JP Morgan, Equifax, and Citibank all falling victim.

By the way — Reddit user SpeedyflyChris, who analysed the recent Tether hack, notes that coins from the 2015 hacks of Bitstamp and Bitfinex were used to pay the transaction fees involved in the recent Tether hack, which would suggest that both the 2015 Bitfinex hack and the 2017 Tether hack involved the same person or group.

Some questionable actors have jumped on Bitfinex’s challenges and its related cryptocurrency, Tether, at every turn. What they fail to do is to recognize the unprecedented and shifting crypto landscape and the fact that Bitfinex abides by all existing laws and reporting requirements such as KYC/AML, and that it remains committed to becoming the most transparent crypto exchange in the industry.

The second sentence is completely non sequitur — it doesn’t address the first at all.

Bitfinex works closely with financial regulators, law enforcement, compliance personnel, and financial institutions to provide the highest possible level of protection and service for its customers. It has hired nationally recognized accounting firm Friedman LLP to conduct a full audit of its books, which will be released as soon as possible. On an interim basis, Friedman released a report showing that Tether had $442,984,592 cash reserves as of September 15, 2017 to fully back Tethers that have been issued.

This statement, concerning Friedman LLP’s not-an-audit report on Tether, is trivially incorrect in important ways. Friedman specifically and explicitly stated that they could not say whether the cash visible on that day was backing the Tethers, or even if Tether had reliable access to the funds in question.

(From page 4: “Note 1. The [REDACTED] account is in the name of a trustee held for Tether Limited. FLLP makes no representations about the sufficiency or enforceability of any trust agreement between the trustee and Client. Note 2. FLLP did not evaluate the terms of the above bank accounts and makes no representations about the Client’s ability to access funds from the accounts or whether the funds are committed for purposes other than Tether token redemptions.”)

Who is Bitfinex’s biggest critic? An anonymous online Twitter user who throws allegations around without ever revealing his or her own identity. As a communications professional myself, I know that whenever someone lobs accusations and attacks behind the veil of anonymity, one has to question their motives. We still don’t know who founded Bitcoin itself – yet its value is at $10,000 with no signs of slowing down. Far from hiding in anonymity, Bitfinex is led by a strong management team, and the company boasts 50 employees.

The first thing a journalist with any journalism in them will want to know is “where is this critic’s Twitter? So I can ignore them properly, you understand. And read every detail of the stuff I need to ignore.”

The Twitter poster in question is, of course, “Bitfinexed”, who also blogs about this stuff and puts evidence up on YouTube. I’ve yet to see them named in the mainstream or financial press, but I can assure you that every journalist following this story reads them avidly.

Apparently, anonymity for the creator of Bitcoin is nothing to worry about, but anonymity for the whistleblower who assiduously tries to back up all their claims — and who’s had Internet stalkers putting a bounty on their identity, and death threat messages, for their work — is bad?

Ad hominem is a terrible argument strategy when all the concern is about the facts themselves.

As the crypto market continues to grow and mature, there are sure to be more hacks, thefts, and other challenges across the board for all players involved. But this train has left the station, and there’s no turning back. Transparency, accountability, and responsibility–these will be the keys to running a successful crypto company over the long term, and Bitfinex has demonstrated it’s committed to these foundational principles.

So far they’ve had a few problems with audits and transparency. The Ledger Labs audit of Bitfinex promised in 2016 never happened. The Tether audit by Friedman LLP promised to journalists in September 2017 turned out to be explicitly not an audit.

Ronn Torossian is CEO of 5WPR, one of America’s leading independent PR firms. His firm is agency of record for Bitfinex and Tether.

The response

The best bit, though, is not the terrible press release — it’s the Twitter thread following Swanson’s tweet.

Ronn Torossian dives into the thread personally. Torossian is famous in PR as a scrapper, “the brash new face of PR.” Unfortunately, I can’t say he does well here.

Tim Swanson answers first:

Which journalists are you working with? (One of them gave me your letter above.) Is it Tether Ltd that is publicly releasing financial statements? Or also Bitfinex, the exchange? Why did Tether Ltd allow @btcecom to use USDT? Are USDT backed 1:1 by USD in a bank? — Tim Swanson (@ofnumbers) December 1, 2017

(BTCe was the Russian exchange favoured by organised crime and Bitcoin hackers, such as the one that hit Mt. Gox. It was busted in July … and had started using Tethers in April.)

The crypto crowd respond to Torossian with utter disbelief and ask him to supply the obvious and clearly lacking factual backing.

Torossian makes an utterly ridiculous offer to “Bitfinexed”:

How about you sign an nda give us your name and in nyc tmrw or next week we give you access? — Ronn Torossian (@RTorossian5wpr) December 1, 2017

Blah blah blah reveal who ur sign an nda and review it all #challenge — Ronn Torossian (@RTorossian5wpr) December 1, 2017

What a great offer to extend to the whistleblower!

Hello please give us your personal information and promise never to tell anyone our secrets — ButtcoinLeaks (@ButtCoin) December 1, 2017

Who could refuse such a sweet deal as this? A great trade really. Provide your dox to scumlords incorporated in exchange for never talking about them again. lol get bent. https://t.co/iX3n1n9ibV — ButtcoinLeaks (@ButtCoin) December 1, 2017

If you are asking people/journalists to do an audit, but also have them sign a NDA, You must have something you dont want getting out, Transparency is key in things like this @SatoshiLite @Tether_to @bitfinex — Brad Frankel (@BradXMR) December 1, 2017

just show the authorities ask them to sign an NDA when they arrive with the warrants. see what they say — Mark Brazis (@BrazisM) December 1, 2017

Who is all of this meant to convince, anyway?

The PR problem is that “Bitfinexed” is making detailed fact-based claims, with citations for each statement. Now, they could still be wrong! Maybe they’ve misunderstood something! Maybe there are other relevant facts that should be considered! But even if “Bitfinexed” stopped tomorrow, the factual claims remain. They’re your image problem.

It’s not clear who the audience is for this PR outreach — the “whales,” the big crypto investors, who like Bitfinex already? The smaller crypto investors? The popcorn crowd like me, who follow this stuff because it’s hilarious trash? Finance journalists? Mainstream journalists? The regulators?

The first three groups are the jargon-slinging in-crowd, who know “Bitfinexed”‘s claims inside-out and have checked out their claimed evidence. The PR is attempting handwaving distraction in response to factual claims with evidence supplied that the audience will have read.

You need to address the claims themselves — refute the claims that are incorrect, supply additional checkable evidence where you think the current public evidence is incomplete. Supply solid information that will pass basic tyre-kicking, to convince the people concerned by the negative information that already passed basic tyre-kicking.

The finance journalists are quite aware of “Bitfinexed” and their work, and are watching closely and going “oh my goodness.” The big problem finance journalists have (having spoken to some) is getting their editors’ interest in anything investigative concerning cryptos! For all the surface media interest in the bubble, the finance press don’t actually care that much. Our little area of interest is trivial in the wider world of finance.

Mainstream journalism is even less interested in the inside baseball than the finance press — just look at how consistently terrible their articles on Bitcoin are. But this isn’t Bitfinex’s market anyway — they explicitly don’t care about the retail market of ordinary consumers, because it’s a low-volume high-maintenance pain in the backside. They’re happy to leave that market to exchanges like Coinbase.

And regulators … I can’t see a press release attacking critics influencing them positively at all. Though it might influence them negatively if you try hard enough. Remember when the SEC reached out to Jorge Stolfi, asking him to please comment further on the Gemini Bitcoin ETF, that was then rejected?

I’ve done a bit of PR — I’m a volunteer PR contact for Wikipedia, did a ton of their press 2006-2010, worked on framing and approaches and so on — and fully appreciate that 5W have been handed a tricky assignment here. But you don’t answer fact-based bad PR with ad hominem.

You can’t use the sort of approach you’d use for, say, a celebrity PR issue. Astroturf or ad hominem won’t convince people worried about their money either. It’s got to be fact-based and solid.

I’m not sure how to describe PR as bad as their present approach without going so far as comparing it to the Scientologists. I was one of the Internet crowd tangling with those guys in the late 1990s. My website about them is still available. (Remember when 7 megabytes was a large site, not a large page?) They even put around defamatory leaflets about me. The obsession with unmasking anonymous critics with their facts in order, while fellow cultists run a harassment campaign with death threats, was literally standard procedure. “Start feeding lurid, blood sex crime actual evidence on the attackers to the press,” as L. Ron suggested. Don’t inspire comparison to those guys.

Let’s assume that every one of those three quarters of a billion Tethers is backed by a real dollar in a bank account, and the Tether and Bitfinex enterprises are entirely on the level. The succession of non-audits, the bizarre behaviour and the desperate, pathological public relations approach do not assuage doubts.

It is sort of amazing that somehow the actual Bitfinex PR man is worse at PR than the idiots they've been sending to reddit for the last several years. — ButtcoinLeaks (@ButtCoin) December 1, 2017

Update: Yeah, proper journalists are rather less than impressed with this campaign:

This NDA trend/intimidation needs to stop. No one with journalistic integrity would ever sign such a thing https://t.co/iMhsIN03vp cc @davidgerard @Bitfinexed To try to extort such deals in full public view is beyond bad PR. — Izabella Kaminska (@izakaminska) December 1, 2017

Update 2: and now legal threats against critics.