Cryptocurrencies declined in trading Thursday (April 26) night after the New York Attorney General went after Bitfinex, a crypto exchange, for hiding the fact it’s missing $850 million.
According to a report in Fortune citing the legal filing, the New York AG alleges Bitfinex used Tether reserves to pay customers who wanted withdrawals from the exchange. Tether is backed by the U.S. dollar and is known as a stablecoin. The New York AG says the funds used from Tether total $850 million. Chad Cascarilla, the head of Paxos, which has a rival stablecoin, told Fortune $850 million worth of Tether would represent around 27 percent of Tether dollar reserves. That revelation sent shares of bitcoin down close to 6 percent. It’s also raising worries that Tether isn’t a viable stablecoin, noted the report.
The court filing also shows messages that an executive at Bitfinex sent last August to get capital from a payment processor in Panama that Bitfinex had transferred funds to. “The situation looks bad. We have more than 500 withdrawals pending and they keep coming in … [T]oo much money is parked with you and we are currently walking on a very thin crust of ice,” the message from the Bitfinex executive who used the name “Merlin” states. Fortune noted that Merlin said the situation could result in the price of bitcoin falling to below $1,000 if the payment processor didn’t act quickly. The NY AG filing contends Bitfinex used money agents that included “human being friends of Bitfinex employees that were willing to use their bank accounts to transfer money to Bitfinex clients.”
As for the relationship between Bitfinex and Tether, the New York AG said in the filing that claims that the two entities are operated independently are questionable, given the same people appear to be in control of both Bitfinex and Tether. Fortune noted that it’s not clear the impact this will have on the cryptocurrency market. Paxos head Cascarilla said a lot of the exposure to Tether is in Asia and that the situation underscores the need for investors of crypto to use exchanges and stablecoins that meet regulations in the U.S.