Tether Turmoil Twist: Stolen Reserves Proves Crypto Stablecoin Was Once Backed
The crypto community is in an uproar following the New York State’s Attorney General’s office accusation that prominent crypto exchange Bitfinex – tied closely to the controversial stablecoin Tether – had hidden a $850 million loss at the hands of a capital management company.
While the news caused a steep, widespread selloff across the crypto market, there is some good news buried deep within the Tether turmoil: the fact that $850 million was stolen from Bitfinex could be the best proof yet that Tether is or was backed by fiat reserves as the parent company claims.
Erik Voorhees: Bitfinex “Drama” Disproves The Bitfinex’ed Conspiracy Theory
Tether and its sister company Bitfinex, both have been the subject of much controversy in recent years. Tether, has been accused of a full gamut of shay behaviors, but none so damning as the claim that all Tether’s in reserve aren’t backed by a corresponding US dollar. Tether has also been at the center of an investigation on Bitcoin price manipulation, and has had a negative reputation across the crypto industry.
Regardless of the negativity and controversy surrounding the stablecoin, it’s widely used by traders seeking a safe haven from falling cryptocurrency prices.
But last night’s news saw crypto investors fleeing for the safety of other stablecoins, and even Bitcoin, as the price of the leading crypto bounced as investors fled Bitfinex by cashing out their Tethers for BTC, and then moving them off the exchange en masse. The exodus was publicized via Twitter, highlighting each blockchain transaction moving funds away from the accused exchange.
Ironically, this latest Bitfinex drama may be the one thing that disproves the “Bitfinex’ed” conspiracy theory. If USD in that amount was seized/stolen/held by Crypto Capital, then the USD backing Tether DID actually exist after all. @Bitfinexed claim was that USD never existed.
— Erik Voorhees (@ErikVoorhees) April 26, 2019
Despite all the turmoil surrounding Tether and the crypto space at the moment, ShapeShift CEO Erik Voorhees, concludes that the controversy might just be the best evidence yet that “disproves” Bitfinex’ed’s theory that Tether’s weren’t 1:1 backed by a corresponding US dollar as the company claims.
Bitfinex is accused of hiding a loss of $850 million, due to their Panama-based capital management company, Crypto Capital, stealing the funds. Bitfinex is further accused of using nearly $700 million of the company’s fiat reserves allocated for Tether to cover up the loss.
However, as Voorhees points out, if the reserve fiat didn’t exist, Bitfinex would likely have not been able to cover the loss, and would have went under. The fact that Bitfinex was able to borrow from the reserve to cover the loss suggests that the reserves were indeed fully backed as the company has asserted from the very beginning.
Following the New York AG’s accusations last night, the price of all major cryptocurrencies, including fell 7% or higher. Tether has also dropped in price following the news, and capital has begun entering other stablecoins in the market, which are up roughly 2% on the day.