Bitcoin is trading at a more than US$300 premium on the embattled Bitfinex cryptocurrency exchange amid speculation investors are exiting the Tether stablecoin in the wake of allegations the affiliated companies that control both the exchange and the stablecoin engaged in a cover-up to hide hundreds of millions in losses.

The New York attorney general last week accused Tether and the operator of the Bitfinex exchange of participating in a cover-up to hide nearly US$1 billion in losses in corporate and client funds. The allegation prompted Tether to confirm the stablecoin isn’t fully backed by U.S. dollars, casting further doubt on a corner of the market long roiled by allegations of impropriety. That’s increased demand for Bitcoin, which is trading for about US$5,570 on Bitfinex while going for US$5,250 on other exchanges.

“What the actual price is and what’s being used to translate to Bitcoin is part of the issue,” said Bloomberg Intelligence analyst Mike McGlone. “People on Bitfinex are getting out of Tether, off the exchange and what’s the first thing you’re going to buy if you don’t want too much broad crypto exposure? Bitcoin.”

Bitfinex, unable to sustain bank relationships, entrusted more than US$1 billion in client and corporate deposits last year to a Panamanian firm known as Crypto Capital Corp., according to the civil case brought by Letitia James, New York’s attorney general. Bitfinex was using the firm as an intermediary to wire dollars to traders.

Tether, which shares management with Bitfinex, disclosed in a New York state court on Tuesday that its stablecoin is backed by cash and short-term securities equal to 74 percent of the outstanding coins. The price of Tether has historically traded near US$1 thanks to company claims that each one was backed by a dollar in its bank accounts. Representatives for Bitfinex and Tether didn’t immediately respond to requests for comment.

“Buyers are getting worried, are concerned, and that’s going to cause some significant swings in price fluctuation, whether there’s less supply that’s starting to occur or whether there’s a premium in getting out,” said Dave Balter, chief executive of Flipside Crypto Inc. in Boston. “Everyone’s wondering if this is going to exist, if the exchange is going to exist, and are they going to be able to offset the costs of some legal issues.”

This isn’t the first time Bitcoin’s traded at a premium on Bitfinex versus other exchanges. In October, Tether broke below its historically tight trading range of around US$1, fueling uncertainty that investors could be losing faith in the coin and, in the process, driving up the risk premium to nearly US$300.

And the company’s had other issues. Bloomberg also reported last year that the U.S. Justice Department is investigating whether traders used the Tether stablecoin to manipulate the price of Bitcoin, while the U.S. Commodity Futures Trading Commission sent subpoenas to Bitfinex and Tether in late 2017.

“I tend to think where there’s smoke, there’s fire,” said Balter. “There’s a lot of things people don’t understand in this industry, including the exchanges and including those that offer stablecoins or build other models. They’re all still figuring out how things really work.”