Cryptocurrency researcher Alex Kruger analyzed the situation around the Bitfinex exchange and its related companies, and came to the conclusion that the stablecoin Tether (USDT) is provided with currency reserves only 75%.
Based on the information provided in official documents , Kruger in a series of tweets briefly describes the sequence of events around a well-known trading platform. The first thing he notes is that Bitfinex really had a “hole” of $ 850 million , formed at the end of last year.
Means "stuck" in third-party processing Crypto Capital. Representatives of the latter claim that they were confiscated by the authorities of several countries. After this statement, Bitfinex management suspected payment processing of fraud.
1 / Digesting the Bitfinex New York AG probe
– Bitfinex has a $ 850M "hole" since late 2018
– The $ 850M are “stuck” with Crypto Capital, a third party payment processor used by Bitfinex
– Crypto Capital argues $ 850M have been seized by the authorities of various countries pic.twitter.com/nkd1imWZbE
– Alex Krüger (@krugermacro) 26 April 2019 р.
Kruger stresses that until November 2018, the USDT coins were fully backed by a fiat dollar. However, between November 2018 and March 2019, the Bitfinex Issuer of Stablecoins, Tether, transferred to the Stock Exchange $ 625 million.
According to CoinDesk , this was done "to solve problems with Bitfinex liquidity, not related to Tether". Since then, the USDT has ceased to be fully backed by the fiat dollar.
2 /
– Bitfinex mgmt Crypto Capital's principles
– USDT were seemingly fully backed by USD until Nov / 2018
– Between Nov / 2018 and Mar / 2019, Tether transferred $ 625M to Bitfinex => Tether ceased to be fully backed by USD
– Alex Krüger (@krugermacro) 26 April 2019 р.
Note that the transfer to $ 625 million could be made in early March of this year, since around this time Tether updated the USDT tokens security policy . Each coin was provided with "reserves, which include the traditional currency and cash equivalents, as well as, from time to time … other assets and forthcoming proceeds from loans that Tether provided to third parties."
Then, Kruger continues, in March 2019, Bitfinex decided to “patch a hole” in the balance with the help of a credit line from Tether in the amount of $ 900 million with a three-year maturity and an interest rate of 6.5%.
According to CoinDesk, the credit line was secured by 60,000,000 shares of iFinex Inc. owned by DigFinex. This transaction was closed on March 19th. To date, the total loan amount is $ 700 million.
3 /
– In Mar / 2019 Bitfinex "returned" the $ 625M to Bitfinex
– Since Mar / 2019 Bitfinex is a $ 900M line of credit from Tether
– The line of credit (which pays 6.5% pa) is secured by iFinex shares
– Bitfinex has accessed $ 700M from the line of credit
– Alex Krüger (@krugermacro) 26 April 2019 р.
As a result, the analyst concluded that Tether's stablekloins are currently backed up by 75% with cash and their equivalents, and by 25% with a loan secured by iFinex shares.
6 /
Corollary: Tethers are now backed by
– 75% USD (currency and cash equivalents)
– 25% a loan secured by iFinex shares (other assets and receivables)
This represents considerable credit risk. pic.twitter.com/Q3mXWJvuwj
– Alex Krüger (@krugermacro) 26 April 2019 р.
According to Kruger, this option of partial reservation is fraught with significant credit risks.
Opinions of other experts on the situation with Bitfinex and Tether
Many analysts are convinced that problems with Bitfinex may adversely affect the market. So, according to Bitwise , this marketplace is currently in second place in terms of bitcoin spot trading:
The possible closure of Bitfinex can lead not only to a shortage of liquidity in the market, but also provoke a significant tightening of industry regulation.
Analyst @jpthor__ agrees with Kruger’s conclusion that initially Tether was fully secured, but after problems with Bitfinex, it was backed up by only 75%.
– Bitfinex & Tether have the same execs.
– Shady internal transactions
– OAG NY will rake both over the coals, potentially fines
– Bitfinex may not survive, Tether might– JP [₿ ⚡️] (@jpthor__) 25 April 2019 p.
According to him, if the prosecutor's office in New York is busy with companies, then Bitfinex may cease to exist, but Tether will survive.
In general, I'm sure @jpthor__, this situation opens up good opportunities for buying Bitcoin. In addition, in the long term, the situation with Bitfinex and Tether will have a positive impact on the development of the industry, since “another skeleton is pulled out of the closet”.
For Bitcoin: I think 5-10% slide in the next few days. Perfect time to buy.
This is a good thing. One more skeleton to clear from the closet.
Gox chapter, then we're good to go
– JP [₿ ⚡️] (@jpthor__) 25 April 2019 p.
Not so optimistic is the user of NebraskanGooner, who believes that this situation will scare institutional investors.
… away from crypto in –
3 …
2 …
one…– NebraskanGooner (@nebraskangooner) 25 April 2019 р.
An independent crypto-researcher Hasu has come to the conclusion that if Tether is provided with 75% of reserves, then Bitfinex can hardly boast such a margin of financial strength.
Deleting this tweet because I no longer stand behind it after spending more time with the material. USDT looks to be backed by 75% cash + equity in BFX. The value of that equity is not zero, but depends heavily on their recovering the 850m. pic.twitter.com/1cIAlJ0NYO
– Hasu (@hasufl) 26 April 2019 p.
Earlier, BlockchainJournal reported that investors panicked more than $ 300 million in Bitcoins and Ethereum.
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