The Bitfinex Dilemma: Blow up now, or try a Hail-Mary to retain in business.

Nov 16, 2017 · Unlisted

In my last post, I mentioned how Bitfinex essentially started a ponzi scheme in order to pay back their BFX tokens.

In this post, I’m going to look at things a little bit from the side of Bitfinex of the choices they had, and this may help explain their rational for their actions, while sending their trolls out to try and gaslight me.

If you recall, Bitfinex was hacked and lost 72 million dollars of their customers money. They slowly paid back a small percentage of these with ‘real money’.

Their main scheme was to pay these back by selling equity in Bitfinex to people holding their debt tokens. Bitfinex themselves admitted it would take several years to pay these back normally.

Let’s set aside for a moment that their valuation had no basis in reality due to non-existent (but promised) audits and wash trading (bitfinex based their valuation on income derived from trading fees, but includes wash trades in these numbers).

They sold roughly (as far as I know), around 50 million in equity. The rest of the BFX tokens were paid back with Tethers it looks like.

On April 3rd, 2017, just two days before Bitfinex was about to file a major lawsuit against Wells Fargo (which bitfinex admitted was frivolous), they announced that they had ‘paid back’ all of their tokens.

They successfully convinced token holders into buying equity, and they printed enough Tethers to pay off the remaining holdouts (which they could only withdraw by buying Bitcoin…further inflating prices)

Just as they said they ‘paid back’ their tokens, Wells Fargo, the last bank willing to process their transactions, cut off all services on March 23rd.

Bitfinex essentially had the rug swept up from under them. An exchange is completely dead without banking. It’s a water park with no water. A movie theater with no movies. A peanut butter jelly sandwich with no peanut butter or jelly. A nothingburger.

They essentially had two options.

Option 1. Shut down the exchange until they re-establish banking, process USD withdrawals via their “settlement” setup with their lawyers. Shareholders go into panic mode, lose market share to legitimate exchanges, end result, exchange dies, shareholders who converted their debt to equity… bag holders.

Option 2. Ponzi. Start artificially inflating the price of bitcoin to influence a mania while trying to re-acquire banking, ensure that the price of Bitcoin NEVER falls so that new money is always trying to come into the exchange and they can process some withdrawals to keep some people happy.

Use any means possible to ensure prices never fall.


It’s very simple actually.

If the price of bitcoin is always rising, people always want to deposit money to the exchange. Bitfinex currently admits that ‘large corporate’ accounts can deposit and withdraw, and they require you to jump through a bunch of ‘hoops’ in order to do this.

Enter Hawala banking. I highly suspect that this is likely one of the many tools Bitfinex engages to remain in business.

As Bitfinex is not exactly honorable when it comes to banking arrangements, as they once claimed that they would play cat-and-mouse tricks with banks by continuously creating shell companies every time their accounts were shut down.

Now, say for some reason you want to deposit money to Bitfinex, let’s say… $5 million dollars. Bitfinex has a customer that wants to withdraw $2 million, and another that wants to withdraw $3 million.

Bitfinex essentially match-makes you with someone wanting to withdraw from their exchange, and you send the money directly to the other party withdrawing.

Bitfinex isn’t in the middle of this transaction at all. Banking is immune to shutdown because neither party is Bitfinex or blacklisted.

So in this case, to deposit $5 million to Bitfinex, please send Alice $2 million, and Bob $3 million. Once Bitfinex confirms that the money was sent, they internally adjust the accounts by removing $5 million from those two accounts, and crediting you $5 million.

Bitfinex could also queue up deposits for handling withdrawals.

For example, say you want to deposit $5 million to Bitfinex, but Bitfinex doesn’t have any large pending withdrawals. In theory, you could sign an agreement to pay them $5 million.

You retain control of the money, they credit your account $5 million while you still have possession of the funds.

Then, when they are ready, they’ll ask you to pay out Janice who wants to withdraw $2 million, you send the $2 million to Janice and Bitfinex simply gives you a receipt that you paid them $2 million.

This all sounds good, right?

Well, there’s a problem. This requires a never ending stream of money coming into the exchange.

The minute the prices of Bitcoin turns bearish, and the prices continuously fall, eventually people will stop catching knives, money coming in comes to a trickle, and people are wanting to withdraw and nobody wants to deposit.

So, the only choice Bitfinex has, is to relentlessly manipulate the price of Bitcoin up for as long as possible so that people always want to deposit, until they are able to re-establish a legitimate banking partner.

If that were to happen, they could then let the prices crash and nobody will be the wiser… because…

“oh well yeah it’s bitcoin, of course bitcoin crashed and fell 80–90%. Welcome to Bitcoin!”

I don’t believe that Bitfinex expected it to take so long to re-acquire banking. Phil Potter originally said it would be a few weeks.

However, it has been 7 months with no resolution to their banking problems. It’s my personal opinion, they will never re-establish banking relations allowing them to function normally.

No Bitcoin exchange that has been cut off from formal real-fiat banking for 7 months, has ever survived.

Also, let’s not forget the last time we had a Bitcoin exchange with no banking, we had quite a bubble. Especially when they were printing fake money to buy Bitcoins.

And well, that’s exactly what we have going on now. Hundreds of millions of fake money masquerading as US Dollars propping up all crypto markets.

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Tether has never redeemed a single Dollar, as issuance always rises and never falls. In theory, Tethers should be going up and down in market cap as people deposit and withdraw from it.

But the reality is, nobody can withdraw.

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Nobody can deposit, either.

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They really want people to believe that someone has bought 550* million worthless Tethers for a product that doesn’t even work.

*I suggest not using the dollar sign ($) when referring Tethers, as Tethers are not money, not redeemable. They are car wash tokens.

A possible theory behind Tether

One possible theory for the issuance of Tethers is Bitfinex/Tether themselves are borrowing money from a bank, using these on the margin markets to earn a higher return than their interest rate they borrow at.

Under these circumstances it would make sense, and the risk to the bank is minimal, because Bitfinex never has to withdraw the funds from their bank.

I would argue that if you went to a bank, asked to borrow $500 million, and pay them 5–10% APY interest, on top of never withdrawing the money from your account, a bank might be willing to play ball.

They can’t lose, and Bitfinex can charge 38.87% APY on their margin markets, or more (I’ve seen as high as 1,100%)

They could also speculate on the price of Bitcoin with these tethers, even if their positions crash in value… the money is still in the account and they can prioritize the bank prior to their depositors.

But then it does mean that everyone holding a Tether is in a sense, holding a liability that Bitfinex/Tether has to their bank.

Not to mention they could show their terms of service to their bank and say well “Look, we don’t ever redeem these Tethers anyway”.

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Tether Terms of Service


Let’s go back in time. Bitfinex announced they engaged “Ledger Labs” to do a full financial audit, including their liaiblities.

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In April 2017, Bitfinex admitted that they never actually engaged the auditor, “Ledger Labs”.

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Translation: We lied. (Source)

Despite the simple fact that Bitfinex, never engaged Ledger Labs, traders and customers were informed that the audit was progressing as late as February 2017.

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Bitfinex Employee “Andrew” informing customers of audit in progress, February, 11th, 2017 Source

What has Bitfinex been saying about their audit since April of this year?

‘Audit is in progress’.

And don’t forget that one time Bitfinex lied about their association to Tether.

How many times can they lie to their customers, and get away with it?

I’d argue an audit is not coming. Ever.

If they release anything, it will be another ‘management report’ full of disclaimers by Friedman LLP that render the document worthless.


Bitfinex had two terrible options before them. They either shut down due to no banking, causing catastrophic losses to their new shareholders who just took a big chance with them, or they try to inflate a bubble, and hope it gets big enough so that they can at least pay back their shareholders and well, screw everyone else.

I’d argue they took the latter option. Because with a pump and dump, at least there’s a chance they get away with it due to the unregulated nature of Bitcoin, and well, every time someone tries to call them out on their scam they are able to send in their trolls to quell any sort of outrage.

At least until I came along as I refuse to back down and drop the subject.

I intend to succeed where they failed, by persistently telling people the history and the truth of this exchange. Sooner or later, the truth always comes out.

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Let’s not forget that time where the Chief Financial Officer Giancarlo Devasini, of Bitfinex was credited a million dollars he did not have on deposit, to trade with.

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“myself” is a former administrator of Bitfinex. (Source)

Trade carefully.


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