New Report Sheds Light on Bitfinex's Financial Dealings - Bitsonline

New Report Sheds Light on Bitfinex’s Financial Dealings

A new report claims that cryptocurrency exchange Bitfinex found a new bank in Puerto Rico last year and relied on a Panamanian financial institution to provide liquidity for fiat currency transfers. The news partially opens the lid on Bitfinex’s financial dealings, as well as drawing attention to digital token Tether.

Also read: So DOJ Is Investigating the Crypto Space – What Will They Find?

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Light Shed on Opaque Bitfinex Bank Dealings

Relying on sources knowledgeable about the situation, Bloomberg reports that Noble Bank International, based in Puerto Rico, has been providing banking services to Bitfinex since last year. Additionally, the report says that the British Virgin Islands-based Bitfinex, which presently is the fourth largest in the world by volume, used a Panamanian payment processor, Crypto Capital Corp, to provide fiat liquidity during the period between when it was blocked by Wells Fargo from making dollar transfers and when it started banking with Noble. Though Noble is not actually holding Bitfinex’s money, as that is being done by the Bank of New York Mellon Corp.

The possibility of a relationship between Bitfinex and Noble had been previously released in a report by BitMEX in February. The next month, BitMEX released further information which strengthened the connection. Prior to that, in 2017, Wells Fargo froze wire transfers from Bitfinex’s Taiwan banks, leading to disruptions of fiat withdrawals for the exchange’s customers. This led to a lawsuit by Bitfinex parent iFinex against Wells Fargo to resume transfers, which was later withdrawn.

In addition to using Crypto Capital Corp for payments, Bitfinex also turned to Dutch bank ING after it was blocked by Wells Fargo and lost access to U.S. banks. This had been previously been reported on the Dutch website Follow the Money and in US News and World Report in February.

On its website, Crypto Capital Corp offers customers the ability to withdraw and deposit funds in euros, US dollars, British pounds, and Polish złotys to and from multiple crypto exchanges, including Bitfinex. The firm also has subsidiaries in several countries which are able to use local banks.

Independent journalist Robert-Jan den Haan provided documentation on some of the firms that Crypto Capital Corp owns. These include the Polish firm Crypto SP Z.O.O., which had a bank account with Polish Bank Spoldzielczy, and Swiss-based Global Trade Solutions AG, which used Portuguese-based bank Caixa Geral De Depositos SA.

Another exchange that Crypto Capital works with is Coinapult, which  received seed funding from big names in the crypto space, including Roger Ver, Barry Silbert and Erik Voorhees, according to the Business Journal. Coinapult advertises that its users don’t need to identify themselves in order to use the exchange.

Digital Token Tether Also Implicated

The news is also pertinent to Tether, a digital token that has the same management team as Bitfinex, a fact which was revealed in documents released in the Panama Papers leaks. Tether claims that one US dollar backs up each Tether token and that regular audits would be performed to prove this. However, no audits have been forthcoming and news broke in January that Bitfinex’s auditing firm, Friedman LLP, had cut ties with the exchange without releasing any work. Around the same time, the U.S. Commodity Futures Trading Commission subpoened both Bitfinex and Tether, meaning both firms are under investigation by U.S. authorities.

Since the beginning of 2018, more than $1.4 billion USD in new Tether have been created. The most recent event occurred on May 18th,  when 250 million Tether were issued. Various Twitter accounts have been tracking  new Tether issuance:

This means that Tether should have taken in $1.4 billion dollars worth of fiat reserves over that time. Yet, there is no evidence from third-party auditors that matching amounts of fiat have ever entered Tether’s bank accounts.

However, the previously mentioned BitMEX report from March noted public disclosures from the Commissioner of Financial Institutions of Puerto Rico, which showed that there had been $3.3 billion increase in bank deposits in International Financial Entities (IFE) in Puerto Rico in 2017. Noble International Bank is considered an IFE. However, numbers for Q1 2018 have yet to be released.

Suspicion of Market Manipulation by Tether

The underlying suspicion from some is that Tether issuance is being used to artificially increase the prices of other cryptocurrencies, such as bitcoin. An anonymous author published a report on Tether, which claims that “48.8% of BTC’s price rise in the period studied occurred in the two-hour periods following the arrival of 91 different Tether grants to the Bitfinex wallet.” The author believes that if it were revealed Tether is being used to pump bitcoin, then there could be a 30-80 percent reduction in its value.

Another report done by cybersecurity expert Tony Arcieri came to similar conclusions. By contrast, Oleksandr Ivanov, a Ph.D-candidate at the University of Gronigen, did a statistical analysis and found no correlation between the creation of new Tether and an increase in the price of Bitcoin. However, it should be noted that Ivanov used CoinMarketCap data in his study. CoinMarketCap has historically been slow to update their Tether market cap data, which could have affected his findings.

A further reason for skepticism around Bitfinex and Tether is that both been hacked in the past. Bitfinex was hit for about $70 million in 2016, while Tether lost $31 million last fall. Bitfinex chose to socialize the losses of its hack, reducing all account balances by 36 percent and issuing a new token that would be reimbursed later.

What’s your take? Where does Bitfinex go from here? Let us know your thoughts in the comments below.


Images via PYMNTS, Mother Jones

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