Citing data from blockchain research firm TokenAnalyst, Bloomberg reported on May 15, 2019, that the current boom in the price of bitcoin (BTC) might just be the consequence of investors withdrawing their holdings from large exchanges due to renewed ambiguity surrounding their financial health.
Bitfinex Tether Fiasco Could have Indirectly Pumped the Market
The study by London-based blockchain research company TokenAnalyst concluded that crypto withdrawals from major crypto exchanges including Bitfinex, BitMEX, Binance, and Kraken eclipsed crypto deposits by as much as $622 million over the past five days. The study found that Bitfinex’s net outflows in bitcoin and ether (ETH) were more than $1.7 billion since April 26, 2019.
Further, there is also the possibility that the price of bitcoin could have inflated as a result of excessive capital withdrawal from the troubled exchange Bitfinex and its closely affiliated stablecoin project Tether (USDT.)
As previously reported, the New York Attorney General’s (NYAG) Office accused iFinex Ltd. – the parent company of both Bitfinex and Tether – of inappropriately handling client funds to cover a business loss of approximately $850 million. In response, Bitfinex and Tether stated that the transfer of client funds was nothing more than a loan between the two partner entities.
Later, on May 2, 2019, in an affidavit filed with the Supreme Court of State of New York, Tether revealed that only 74 percent of its USDT was actually backed by cash and other short-term liquid assets.
This revelation further dented investors’ trust in the so-called “king of stablecoins” which reached a tipping point when they started demanding exchanges to delist the USDT token. Unsurprisingly, information spread like wildfire across the web and soon enough a small-scale cryptocurrency exchange called IQFinex announced that it would delist USDT from its platform.
Tether Strikes Back
Close followers of the crypto ecosystem would remember that this is not the first instance of USDT finding itself in the midst of a burning controversy. The stablecoin has, in the past, been found guilty of manipulating the price of bitcoin.
Speaking on the fresh allegations against USDT and their widespread implications on the market, John Griffin, a professor of finance at the University of Texas at Austin told Bloomberg:
“Since Tether is insufficiently backed, it means that some of the reserves backing customer assets on exchanges are likely insufficient. So smart customers will not custody their funds on exchanges and pull their crypto off exchanges. This could put further upward pressure on Bitcoin prices as one would rather take fake money and exchange it to Bitcoin.”
The controversies surrounding the legitimacy of Tether’s USDT took a visible form on May 1, 2019, when bitcoin started trading on Bitfinex at a premium as high as $300. Analysts opined that the high premium was just an aftereffect of Bitfinex traders exiting their USDT positions in favor of bitcoin.
However, the premium has now vanished courtesy of Bitfinex CTO’s announcement that the exchange had raised $1 billion through private placements.
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