The Bitfinex-Tether Case

Crescent Crypto
May 2 · 6 min read
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Weekly Market Recap

May 2 — Crypto assets declined 1.2% this week ($2 billion), bringing the total market cap to $177 billion. The Crescent Crypto Market Index (CCMIX) was down 2% while BTC lost 1.5% over the same period.

Despite the slight decline week-over-week, intra-day volatility spiked late last week as news surfaced the New York Attorney General was taking legal action against the operators of Bitfinex and Tether (see story below). The headline caused BTC to drop nearly 10% intra-day last Thursday, briefly dipping below $5,000 on some exchanges. Bitcoin has since recovered and appears relatively stable for the time being, but still trades at a sizable premium on Bitfinex compared to other exchanges that aren’t involved with USDT. Crescent Crypto has never traded with Bitfinex or used Tether.

Bitcoin vs. CCMIX

April 25th — May 2nd, 2019

Crescent Crypto Market Index (CCMIX)

Crescent Crypto Market Index Constituent Performance

April 25th — May 2nd, 2019


  • XRP was the only constituent in the black this week, gaining 0.4%. The third largest crypto asset has lagged much of the broader market this year with losses of 12% year-to-date.
  • Seven of twelve constituents lost more than 2% week-over-week.
  • XMR pulled back this week after leading its peers the last couple weeks. It fell 4.1% over the last 7 days.
  • ADA was the biggest loser this week, losing over 6%.
  • BTC dominance rose slightly to 54.6% of the total crypto market cap compared to 54.5% this time last week.
  • At month end, the index gained DASH and shed BSV due to delistings by Kraken and Binance

Notable News

The Bitfinex-Tether Case: Court Grants Show Cause Order Requested By Exchange’s Legal Counsel

What Happened? Last week, markets reacted negatively to the court order filing by the New York Attorney General’s Office involving iFinex Inc., the operator of Bitfinex, and Tether Limited, the issuer of the stablecoin of the same name (USDT). The legal action is a product of the OAG’s investigation into potential violations of New York State law relating to New York investors trading on Bitfinex’s platform and the apparent cover-up of $850 million of missing co-mingled client and corporate funds. Almost immediately, the exchange’s legal counsel released a memorandum of law which explained that the claims made by the NY AG were flawed and that it would not hold in a court of law. The court document also requested a motion for an Order to Show Cause where the NY AG would be required to prove her claims in court, otherwise, it would be required to make the necessary changes or to even modify the charge.

Why Does This Matter? It’s important to note that the exchange’s legal counsel admitted that Tether is operating under a roughly 74% reserve but he also argued that this is not a problem. For argument’s sake, this could be true but Tether has long-claimed that their stablecoin is in fact 100% backed. Furthermore, he begins the affidavit in defense of Bitfinex’s relationship to Crypto Capital, whose refusal to wire funds to Bitfinex back in 2018 bottlenecked fiat withdrawals for many customers. Apparently, Bitfinex had to rely on Crypto Capital’s services because it had been ostracized from proper banking relationships. Bitfinex cites this as how complications with such banks as Wells Fargo is a “perpetual thorn in the industry’s side”. Long term, this will likely cause a healthy wash out of suspicious actors most people were skeptical of to begin with. However, it’ll be important to keep an eye on this situation in the short term. Stephen Palley, a prominent lawyer in the space said the NY AG will be required to prove its claims on May 6th 2019.

Bakkt Acquires Custodian Digital Asset Custody Co.

What Happened? This past Monday, Intercontinental Exchange backed venture Bakkt announced they had acquired Digital Asset Custody Company (DACC). The company’s COO, Adam White, stated “DACC shares our security-first mindset and brings extensive experience offering secure, scalable custody solutions to institutional clients”. Needless to say, the news received a lot of attention once released.

Why Does This Matter? Bakkt has spent two years developing a custody solution, and has publicly stated they are leveraging the same institutional-grade hardware, operational controls, and cybersecurity systems that ICE uses to manage all thirteen of its regulated exchanges worldwide. Within the announcement, Bakkt also disclosed they have filed with the New York Department of Financial Services for approval to become a trust company so they can serve as a Qualified Custodian for digital assets. Given the focus around custody solutions, people throughout the community have continued to voice their excitement for Bakkt’s launch and are hoping more institutional money will finally feel comfortable enough to start entering the market.

Bitfinex Plans To Raise $1 Billion Through An IEO

What Happened? Crypto exchange Bitfinex shareholder Zhao Dong has revealed details of the company’s reported plans to issue a native exchange token, which he claims will launch via a $1 billion initial exchange offering (IEO) in the coming days. The Chinese BTC billionare posted to a public chat on WeChat on Wednesday, outlining that the sale will offer a total supply of 1 billion tokens, priced at $1 apiece, with a minimum buy-in of $1 million. Read more…

Why Does This Matter? Exchange-facilitated initial sales are not a novel concept, however, their application in digital asset fundraising is gaining significant traction in 2019. In an Initial Exchange Offering, exchanges manage and curate the sale of tokens as the underwriter, guarantor, and venue. As a result, part of the counterparty risk shifts from the developer team in an ICO to that of the exchange in an IEO. Despite this, exchanges like Binance and Huobi have found success within their communities. Bitfinex’s IEO will be unique and interesting to keep an eye on given the ongoing controversy recently brought to light by the NY AG. We can’t imagine the market won’t be skeptical that a company recently disclosing an $850M shortfall, is now raising $1B.

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Crescent Crypto is a leading pass cryptocurrency index fund provider