Are Fraudulent Tethers being used for margin lending on Bitfinex?

Mid-July was a very interesting month for Bitcoin. In the span of five days, we saw a $1,000 price jump on Bitcoin, what I like to call, the quite possible, “Wash Trade Rally”.

I say “Wash Trade Rally” because I believe margin longs may have been used in wash trades with fake money, just like on July 27th through August 1st we saw significant wash trading of short positions… over $60 million dollars of it, in fact.


The Setup

If you’re going to wash trade a bunch of margin positions with fake money, well first, you’re gonna need some fake money. Let’s see what Tether’s up to.

Tethers created in July 2017 Source (Archive)

As you can see here, from July 11th to July 18th a total of $80 Million new Tethers were issued.

I contend that all of this money has ended up in the margin markets on Bitfinex, and quite possibly used in wash trading.

By using margin positions they can better keep track of the counterfeit money, because the money has to be paid back, plus any interest.

Also, it’s possible that someone not in their group borrows from a fraudulent Tether backed lending offer, and you want to ensure that they eventually have to pay that back so you don’t have solvency issues.

The extra interest becomes gravy and they can destroy the fake money, and nobody is the wiser, also by margin wash trading you encourage others to go long with their real money, and how would they do that?

Well, by spoofing large bids of course.

Which reminds me of something…

If they are in fact wash trading and buying from their own sell orders with money borrowed from their own fraudulent offers backed by fake Tethers, there’s no problem. They can manipulate the price upwards and they all know the money is fake.

But the money they make from selling Bitcoins on other exchanges, and to sucker OTC buyers, isn’t fake.

Now, let’s look at the chart for the period during the creation of $80 Million in Tethers.

Capitulation, and then suddenly… BOOM!

A $1,000 rally in five days… just days after a bunch of new Tethers were issued, is nothing short of amazing coincidence.

Now, let’s look at the margin data.

As you can see, the total amount of margin used on July 18th was roughly $58.5 Million.

Do you remember what time the $25 Million, in new Tethers was created? 11:15 AM.

What time did margin lending start rising? Let’s look a little closer at the chart. Pay attention to the green line and that little green dot.

Immediately after Tether issuance.

Nearly immediately after the Tethers were issued, we have a massive spike in long positions. Once again, this is not an accident.

Margin longs continued to increase, and then on July 20th, the margin lending markets begin to dry up… as we can see here.

July 20th Margin Data

Here, we see two things.

  1. Margin lending has increased from $58.5 million, to $79.3 Million, an increase of 35%, or… an increase of $20 million, with $2.1 million left on the books. This gets us very close to our $25 million Tethers that were created on July 13th.
  2. There is only $2.1 million USD left for margin long positions.

But then suddenly, a miracle! Somehow, and magically, Bitfinex got yet another $25 million at once to loan out. I tweeted about this when it happened.

Source

July 22nd Margin Data.

From here, you can see two things:

  1. Margin borrowing has increase from $79.3 Million, to $90.6 Million, an increase of 14.2% or $11.3 Million
  2. Suddenly, another $25 million is added on the books at various rates in $2M and $500K chunks.

So where does that leave us today?

Here are the margin stats at the time of this post.

August 16th Margin Stats

Okay Boys and Girls, it’s Math Time

Tethers created in July 2017: $80 Million Total, $25 million of it on July 18th, 2017

Margin Positions at the start July 18th, 2017: $58.52 Million
Margin Positions at the end of July 18th, 2017 (post $25 Million Tethers): $66.5 Million
Margin Positions at the end July 20th, 2017: $84.9 Million
Margin Positions at the end July 22nd, 2017: $90.7 Million

As you can see, immediately after $25 million in new Tethers were created, USD borrowing started skyrocketing, along with the price of Bitcoin.

The total increase from the end of July 18th (after $25 million in New Tethers were created), until the end of July 22nd, 2017?

Drumroll please…

$90.7 Million (Ending July 22nd, 2017)
Minus $66.5 Million (Ending July 18th, 2017)
= $24.2 Million.

And how much margin lending was available on July 22nd, when margin lending was at $90.6 million?

$26.2 Million

The increase, plus available margin? $50.4 million, right in line with the amount of Tethers created between July 13th and July 18th.

Now, where are we today? Didn’t they create $80 million, not $50 million?

Margin Positions on August 16th, 2017: $117.1 Million
Available Lending on August 16th, 2017: $20.6 Million

TOTAL: $137.7 Million

Make sure you sit down before you read what comes next.

Do you remember how many margin positions were active at the start of July 18th 2017? $58.52 Million, right?

$137.7 Million
Minus $58.52 Million
= $79.18 Million

So what are you saying?

Tethers are entering circulation to fund margin positions on Bitfinex. The $80 Million Tethers that were created during July 2017, are on lending markets on Bitfinex.

In my opinion, with how quickly this margin lending was being used up after the Tethers being created, leads me to believe they could be wash trades, organically I’d expect margin borrowing to rise much slower.

And who the hell is going to go margin long so dramatically after a huge crash?

Nobody.

And remember, Tethers are not money. Not redeemable for money. Not backed by any legal claims. So the thought that these are ‘institutions’ gobbling up Tethers to loan out on Bitfinex and make interest on, is ridiculous.

Institutions are not in the business of buying car wash tokens.

It’s very interesting that during the rally, so many Bitcoins are being bought on margin positions. Bitfinex has never had more margin usage… and margin usage skyrockets alongside with their so-called sister companies “Tethers”.

Don’t forget that the margin USD can be used for altcoins on their exchange as well and dramatically affecting those prices too.

Update:

A Twitter user provided us a chart comparing the issuance of new Tethers, to the Bitcoin price, and I believe the chart speaks for itself.

Conclusion

We know for a fact that we have manipulative traders on Bitfinex, that wash traded over $60 million USD of margin positions on July 27th though July 31st.

If you truly believe they aren’t wash trading the long positions with what in my opinion, is fake money, I have some Bitcoin in the Genesis block I’d like to sell you.

For more information on how Tethers work, see my previous post.

The Curious Tale Of Tethers

Trade carefully.

-Bitfinexed