Tether prints $250m, sends $100m to Bitfinex, Bitfinex CSO departs

Posted: 26 June 2018 7:20 pm
Bitcoin Strong - FI

Someday Tether will print its last batch ever without anyone knowing it's the last one.

The Tether company has just printed another quarter of a billion dollars in USDT Tether. This is broadly equivalent to a deposit made to an exchange, and is typically followed by price rises.

In fact, Tether printing may be the single strongest short term predictor of bitcoin prices. In fact, more than 50% of bitcoin's large gain periods over the years can be tied to large Tether printings right before them.

By now, this might be part self-fulfilling prophecy as people buy in anticipation of a rise, part genuine price movement from more USDT in circulation on exchanges and perhaps part deliberate price manipulation.

100 million USDT for Bitfinex

The Tether printing itself doesn't immediately put it into circulation. The Tether company needs to send it over to the actual traders before it enters the system. The usual entry point is Bitfinex, but other large exchanges will also purchase Tether.

Of this last batch, 100 million USDT was sent to Bitfinex.

The bottom one is the printing itself, the top is the transfer of $100 million to the Bitfinex wallet.

It's worth noting the exact time of the transfer. It was slightly over 3 hours between the printing and the transfer to the exchange. This is the usual timeframe between printing, transferring and bitcoin price rising.

This was no exception, with bitcoin prices and trade volume rising, by much more than one would expect by a mere $100 million injection, at about the time the Tether arrived on Bitfinex.

Whatever else might be going on with Tether and Bitfinex, the expected price movements are holding true almost down to the hour.

Tether in the spotlight

Tether is in the spotlight for price manipulation allegations exactly because of these kinds of movements, and because Tether and Bitfinex – which receives much of the freshly printed USDT – both share the same CEO, Jan Ludovicus van der Velde.

One popular theory is that:

  • Tether prints the money and sends it to Bitfinex when bitcoin prices need support.
  • Bitfinex uses that Tether to trade bitcoin on its own exchange and drive prices upwards.
  • Once prices are up, Bitfinex then sells off a portion of the bitcoin at a higher price, to simultaneously push bitcoin upwards and pocket some money in the process.

Needless to say, if that's what Tether and Bitfinex are doing, it's probably as illegal as heck.

A large part of the case hinges on whether or not Tether actually has the US dollars to back up all the Tether it issues. If it doesn't, it's essentially just printing its own unbacked currency. If it does, it's more like providing a useful financial service.

The CFTC would very much like to find out which it is, and so last December subpoenaed Bitfinex and Tether for an answer, but so far nothing seems to have come of it. It's not 100% clear either way, but more recently, the average observer probably has more reasons to believe that Tethers are not backed by full US dollar reserves.

Red flag: Bad excuses

As a general rule of thumb, someone with good reasons for doing something won't explain it with bad reasons.

Tether has never gone through an independent audit, and has never given a good reason why not. It has given two very bad reasons though.

Number one

The first, back in January 2018, was that it was taking too long. Tether severed its relationship with auditor Friedman, citing the "excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether".

That excuse hasn't aged well. It's right that an audit should be relatively simple, which suggests that whatever Tether was presenting was not just a simple balance sheet. It's possible that Friedman actually wanted to verify the information, rather than just taking Tether's word for everything. If that's the case, one has to wonder what exactly Tether is doing that they don't want an auditor to see.

Now months later the issue still hasn't been laid to rest, so even if it was just an excruciating process, it looks like Tether would have been better off gritting its teeth and doing it anyway.

Number two

The second excuse which arrived just last week was that the big four accounting firms are just too stodgy and risk averse to handle such a hot crypto company as Tether, to paraphrase it.

This doesn't pass the sniff test. EY and PwC have both been up to their eyeballs in crypto for years now. EY was distributing bitcoin wallets to staff, and even installed a bitcoin vending machine in its Swiss office. PwC Hong Kong, meanwhile, started accepting bitcoin and diving deep in crypto in 2016.

In both cases, the moves were spurred because those accounting firms were dealing with so many crypto clients and handling cryptocurrency so frequently.

One might reasonably assume that Tether is into some extraordinarily freaky stuff if it can't find a single reputable accounting firm that wants to touch it, and doesn't want to say why.

Tether has never been audited to confirm that its funds are backed. Not only that, but it has outright said that it won't be undergoing an audit.

Instead, it drew the line with a letter from the Freeh, Sporkin and Sullivan Law Firm (FSS) that says all Tether are backed, while acknowledging that all information in the letter was provided by Tether or Tether associates, and that FSS did not actually verify the information provided.

In short, the letter simply says that Tether says it's fully backed but verifies nothing, proves nothing and isn't worth the paper it's printed on.

Bitfinex CSO steps down

Phil Potter was another key figure in Bitfinex. He's just stepped down as the chief strategy officer at Bitfinex to be replaced in the interim by van der Velde. He is also, as the Paradise Papers leak revealed, a director of Tether.

"As Bitfinex pivots away from the U.S., I felt that, as a U.S. person, it was time for me to rethink my position as a member of the executive team," he said.

It might be a coincidence of timing, but Potter's stepping down has led to some speculation that he's getting out while the going's good. At the same time, Bitfinex's recent additions of stablecoin (Tether alternative) listings might be another piece of the puzzle.

Whatever's happening behind the scenes, between the Tether and Bitfinex, staff changes, new printing rounds, accusations of price manipulation, bizarre excuses, the hiring of a law firm to pretend to conduct a pretend audit and everything else, this $250 million Tether printing session has arrived at an interesting time. But it still seems to have stepped in and arrested bitcoin's current price collapse, all as usual.

It might be time to start considering that someday, Tether could be printing its last batch without anyone knowing it's the last one. What happens when bitcoin falls and Tether's not there to catch it?

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, NANO

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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