Bitfinex Points to $850 Million Locked Away, Denies Losses

The exchange, closely related to the Tether printing mechanism, claims the alleged losses of $850 million were kept safely with Crypto Capital.

Updated 10:55 UTC with Bitfinex Statement.

Bitfinex, an exchange beleaguered by accusations of losing up to $850 million, has denied the loss in a recent statement. The exchange operator claimed the recent investigation by the New York Attorney General was made in bad faith, and that funds left with the Crypto Capital payment provider were not lost.

“The New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million “loss” at Crypto Capital. On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded,” Bitfinex explained.

An earlier report pointed that Bitfinex, one of the pivotal cryptocurrency exchanges, may have used its Tether (USDT) reserves to compensate for the losses from last October, when a crash in USDT and Bitcoin (BTC) prices may have led to a deficit of $850 million. A Wall Street Journal investigation points to the possible scenario where Bitfinex issued credit to itself to compensate for the llosses.

The discoveries are creating more worries that the Tether ecosystem is unsustainable. A few weeks ago, Tether announced that each coin was backed partially by cash in a bank, and by cash-like assets, meaning a form of credit. It is possible that Tether has credited Bitfinex to cover the losses.

What is more curious is that in the past few days, Bitfinex itself hardly held USDT in its wallets, as the supply dwindled to less than 5 million coins from hundreds of millions of coins in the past. Now, the USDT risk is spread throughout exchanges.

Other stablecoins are showing signs of increased activity, potentially pointing at attempts to cash out.

As USDT has fallen again to $0.97 on Kraken, breaking its dollar peg significantly and recalling the ominous events of last fall, renewed worries about a Tether crash are causing pessimism. Currently, each day between 70 and 80% of all Bitcoin (BTC) trading happens in USDT pairings. At the same time, alternative stablecoins went above their dollar peg, as traders chose Gemini Dollar (GUSD), TrueUSD (TUSD), USD Coin (USDC) and Paxos (PAX) to store funds.

Reddit comments showed worries that if Bitfinex spread out the loss of $850 million across the entire cryptocurrency trading ecosystem, then USDT was only 70% backed. This means that other traders and markets may absorb the loss instead of Bitfinex.

The announcement of the potential hidden loss also coincides with the recent printing of 300 million new USDT from a brand-new minting wallet. Tether has attempted to obscure its printing activity, by sending out smaller tranches and avoiding to send funds directly to Bitfinex.

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