Bitfinex Missing Funds Could be in the Hands of the US Government

The exchange used CryptoCapital as a payment provider, ending up with up to $850 million locked away, possibly with US authorities.

The Bitfinex exchange is facing precarious financial situation - a gaping hole of $850 million not available immediately. The funds are reportedly not missing, but merely seized by law enforcement - as the exchange explained a few days ago. While Bitfinex claims to be solvent, the sum may be unavailable for months, in the best-case scenario.

In the meantime, CryptoCapital, a firm claiming to link the world of cryptocurrencies with traditional banking, has scrubbed the name of Bitfinex from its site. Just a month ago, Bitfinex was part of the list, that also includes the now-defunct Canadian exchange QuadriaCX, as well as Coinapult, Exmo and CEX.io.

The trouble was, CryptoCapital faced problems and tried to keep one step ahead of banks, in essence obscuring the real purpose for the usage of the accounts. This has led to funds being frozen in the past, later to be released. But now, the practice of ad-hoc banking has attracted the attention of authorities, with recent arrests in the USA related to the handling of funds on behalf of exchanges.

In addition to problems with fiat funds, recently Bitfinex saw large outflows from its cold wallet. After months of no activity, in the last days of April, the wallet saw outflows of around 30,000 Bitcoin (BTC). The reason for the move may be either user withdrawals or moving to another cold wallet. Additionally, Bitfinex holds around 12 million Tether (USDT). The Tether treasury holds 330 million coins, and the larger part of the supply is distributed among leading exchanges.

The problem with Bitfinex and Tether is that currently, as much as 80% of all BTC volumes are paired with the stablecoin. Also, some of the Tethers issued are, in fact, not backed by fiat, but by a credit line to Bitfinex. In essence, the exchange and the issuer of USDT are locked in a circle, while the rest of the trading ecosystem may end up absorbing the losses.

At the moment, the USDT-denominated price for BTC is about $300 above the fiat price. This kind of discrepancy is indicative of another loss of trust in USDT, accounting for the additional risk.

In the past days, there were suggestions that Bitfinex may attempt to mitigate the losses and raise funds anew by an “initial exchange offering” of shares of the exchange in the form of tokens.

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