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Bitfinex warns of “shameless attempt at a money grab” before $1.4 trillion Tether lawsuit


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If you wanted another popcorn-worthy cryptocurrency lawsuit, this one could be for you.

Tether and Bitfinex (collectively iFinex) have been targeted with a lawsuit focused on allegations of market manipulation from 2017 to 2018.

"Calculating damages at this stage is premature, but there is little doubt that the scale of harm wrought by the Defendants is unprecedented. Their liability to the putative class likely surpasses $1.4 trillion U.S. dollars," the suit says.

That figure is based on the $466 billion drop in the total cryptocurrency market cap between 6 January and 6 February 2018, multiplied under treble damages statutes.

The lawsuit is claiming that iFinex is responsible for the explosion and subsequent implosion of the cryptocurrency market from 2017 to 2018. It reiterates the theory that Tether is manipulating markets by printing unbacked USDT to buy up Bitcoin when prices drop.

A few days prior to the reveal of the lawsuit, Bitfinex announced that it "is aware of an unpublished and non-peer reviewed paper falsely positing that Tether issuances are responsible for manipulating the cryptocurrency market.

"We fully expect mercenary lawyers to use this deeply flawed paper to solicit plaintiffs for an opportunistic lawsuit, which may have been the true motive of the paper all along. In fact, we would not be surprised if just such a lawsuit will be filed imminently. In advance of any filing, we want to make clear our position that any claims based on these insinuations are meritless, reckless and a shameless attempt at a money grab. Accordingly, Bitfinex will vigorously defend itself in any such action."

Opinion: How's the suit fit?

This new lawsuit is focused on the question of whether Tether has been manipulating cryptocurrency markets, and that question in turn is focused on whether Tether is fully backed by cold hard cash or equivalent assets.

The reason this matters is because there's no denying that USDT issuance corresponds with Bitcoin price rises.

On the one hand, that can be seen as evidence that Tether is printing unbacked USDT to buy up Bitcoin and artificially inflate prices. But on the other hand, if it is all perfectly legitimate, you'd still naturally expect Bitcoin prices to follow the minting of Tether because it reflects real money entering the market. As such, you have to look at whether Tether is fully backed to work out which of the two it is.

Recently, a separate legal battle has turned up evidence to say that despite its many extraordinarily unconventional business practices, Tether has tended to be fully backed. It's believed that Tether only recently lost that full backing when it made an emergency loan of $600 to $700 million to Bitfinex.

The evidence supporting this includes an affidavit stating that, as of 30 April 2019, Tether had about $2.1 billion in cash and cash equivalents on hand, backing the approximately $2.8 billion of USDT in circulation at the time. This is broadly consistent with full backing, minus that few-hundred-million dollar loan.

The new lawsuit neglects to mention this and other similar findings.


The most entertainingly egregious example of cherry-picking is probably a partial and decontextualised quote from Michael Novogratz, framed in a way that seems to imply he's involved in any of this.

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The full quote reads:

"This is going to be the largest bubble of our lifetimes. Prices are going to get way ahead of where they should be. You can make a whole lot of money on the way up, and we plan on it."

The quote was a prediction of how market enthusiasm for digital assets would create and pop a bubble. But framed in this lawsuit, it's been done up to look almost like some kind of villainous monologue.

A similar level of cherry-picking can be found in how the lawsuit picks from the multi-part "Griffin article", which presents academic evidence of Tether's alleged market manipulation and ignores the parts of the paper which are inconsistent with its argument.

Specifically, the lawsuit conveniently forgets to mention that the same study also finds evidence suggesting that even if Tether is being used for manipulation, it still ends each month fully backed, based on an analysis of how Bitcoin prices are slightly more likely to fall a bit more at the end of the months that saw lots of Tether printing. Essentially, the study speculates that this happens because Tether is selling off more Bitcoin in those months to cover the higher costs of the extra USDT printing.

But even if that's true, it also says that this alleged manipulation was only a relatively small part of the market, while the lawsuit is trying to argue that iFinex is liable for the entire boom and bust.

Incidentally, the Griffin article also notes that the same pattern is found in other asset prices and that it's believed banks' compliance with period-end capital requirements has "a sizable impact on asset prices".

This neatly segues into one of the more philosophical (philawsophical) sides of this lawsuit.

At its heart, the premise of the lawsuit is that if someone irresponsibly uses a magic money machine to print a lot of unbacked dollars, which are used to inflate the value of an asset class beyond its fair value, then the person with the keys to the magic money machine is liable for all the damage caused by those market distortions.

That sounds strangely familiar.

Has iFinex been accused of exercising cryptonomic policy?

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Disclosure: The author holds BNB and BTC at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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