By CCN.com: Still mired in controversy over that $850 million loss, the powers at be at Bitfinex have come up with an idea to replace the funds and it’s raising eyebrows for a bounty of reasons.
Bitfinex’s solution to try to make whole those who were burned in the hack that led to the losses is to issue more tokens. Specifically, the plan is to issue $1 billion of a token called LEO.
Skeptics immediately weighed in as the news of this plan went viral over the weekend. Concerns include the legal troubles plaguing Bitfinex and Tether. Other issues include how such a dump could affect Bitcoin, and how this seems to be a repeat of a squirrely effort the exchange previously embarked on to deal with a hack.
What’s Bitfinex up To?
Chinese crypto investor and Bitfinex and Tether shareholder Zhao Dong gave heads up about the plan by publishing the document about it on Twitter this weekend.
Bitfinex Official document about the LEO token pic.twitter.com/YR5FdS4iUY
— Dong Zhao (@zhaodong1982) May 4, 2019
Observers liken the LEO to Binance’s BNB token. Dovey Wan, the founding partner of Primitive Ventures, chimed in with her support of the effort.
The Bitfinex $LEO is a better $BNB when it comes to “token economic model”
Pumpability TBD as there is not lockup so the immediate $1B circulation will see tons of sell pressure
Sucking $USDT supply (to keep the reserve peg) and re-create the par value via $LEO is genius
— Dovey Wan 🗝 🦖 (@DoveyWan) May 4, 2019
Plans call for Bitfinex to spend up to 27% of its monthly profits to purchase the tokens. According to the documents, if it manages to get back the $850 million it’s owed by Crypto Capital, it’ll be able to buy back LEO.
Crypto Capital is Bitfinex’s money processor and it is at the center of a legal challenge brought by the Southern District of New York. It charges that Crypto Capital played a role in the $850 million loss involving Bitfinex and Tether.
Bitcoin’s Run Doesn’t Need This
If it does dump a billion dollars worth of this token on the market, it could negatively affect Bitcoin, whose price was just beginning to rebound.
Fundstrat’s Tom Lee tweeted:
$1 billion IEO is a lot of “new” token supply and probably has a short-term negative impact on $BTC #bitcoin and other crypto as the market needs to absorb this supply…
…Unless all the purchasers of the IEO come are new to crypto (fiat to crypto), which makes less sense. https://t.co/no9LlN0yJQ
— Thomas Lee (@fundstrat) May 4, 2019
Lee went on to note the effect on miners.
Miners sell $7mm per day so a $1 billion IEO is essentially 142 days worth of miner selling taking place in one day.
— Thomas Lee (@fundstrat) May 4, 2019
So, We’re to Just Forget about the Elephant in the Room
This banter about a billion dollar crypto issuance seems laughable given Bitfinex’s legal woes. At the end of April, New York Attorney General Letitia James obtained a court order to shut down Bitfinex and Tether from operating in the state. At issue is that $850 million loss.
Within a day of learning it had to cease operating in New York, Bitfinex and Tether issued rebuttals. They both claim the Attorney General’s move was in bad faith. They wrote:
The New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million “loss” at Crypto Capital. On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded.
Since the Attorney General’s action, several other reveals have been made. This includes two arrests with one being a former NFL team owner. The U.S. Justice Department charged Reginald Fowler over his role in concocting a shadow banking scheme. It entailed the processing of hundreds of millions of dollars of unregulated transactions on behalf of several cryptocurrency exchanges, as CCN reported.
Sound Familiar? It Should
This is not the first time Bitfinex has plugged a hole in its balance sheet by issuing tokens, points out Forbes. The exchange’s operator, iFinex, made a similar move in 2016 following a hack. Forbes noted:
In 2019, it seems to be trying to do so again. But if iFinex were actually a bank holding company, would it get away with this? Perhaps it is time that cryptocurrency issuers and exchanges were subject to the same regulation as traditional banks and exchanges.
