As you may already know, Bitfinex, the cryptocurrency exchange tied to the USD Tether scandal, has been served a lawsuit filed by the New York Attorney General Letitia James.
Documentations filed to support this lawsuit indicate that the Bitfinex-Tether debacle is what caused Bitcoin’s drop from over $6,000 to under $4,000 in late 2018.
Per the documents, a transcript of conversations between a top Bitfinex executive (codenamed “Merlin”) and his business partner from Crypto Capital (codenamed “CCC”) reveal a discussion stating that Bitcoin could drop to $1,000 because of Tether.
The Bitfinex/Tether Scandal
Though the New York Attorney General filed the lawsuit against Bitfinex on April 25, 2019, Bitfinex’s various solvency issues date back to August 15, 2018.
Most interestingly, pages 12 to 15 of the filed documents show a conversation between the aforementioned Bitfinex executive and Crypto Capital partner, wherein they discussed the moment when Bitfinex required at least $100 million to satisfy client withdrawals:
“Bitcoin could tank to below $1K if we don’t act quickly.”
The Bitfinex executive said he needed at least $100 million to cover the withdrawals. This shouldn’t have been a problem, but because Tether wasn’t backed 1:1 by the US dollar , Bitfinex was short of funds.
See the transcript below:
Bitcoin Crashes From $6,400 to $4,009 in Only 2 Weeks
The Bitfinex executive did not get the money from Crypto Capital, and around the same time, Bitcoin’s price dropped from $6,400 to $4,009 in only 2 weeks, losing $41.6 billion of its market cap.
While some analysts suggested the Bitcoin Cash (BCH) and Bitcoin SV (BSV) hash war crashed the price, with the knowledge that we have now, it’s looking like this crash was actually caused by Tether. The Bitfinex executive knew that things could go south very quickly if they couldn’t process withdrawals, and it turned out he was right.
While the price of Bitcoin did not drop to $1,000 it did drop quite significantly in a short period of time.
Nevertheless, all the statements and accusations outlined here are mere speculations, and we will have to wait and see how the investigation by the New York Attorney General pans out. Until then, we can only speculate what the effects of this scandal already were, and what they will be.