Subpoenas, Price Manipulation Worries: What You Need To Know About Bitfinex

The cryptocurrency sell-off continued on Thursday as fears about the legitimacy and stability of the cryptocurrency markets continue to grow. One of the primary players in this week’s jitters: Bitfinex, a a popular cryptocurrency exchange.

Subpoenas Arrive

Bloomberg reported Tuesday that Bitfinex and the cryptocurrency Tether were subpoenaed by the U.S. Commodity Futures Trading Commission in December. Tether and Bitfinex share a CEO, and the two companies released a joint statement saying they “routinely receive legal process from law enforcement agents and regulators conducting investigations” — and are not commenting on the recent subpoenas.

One of the primary concerns about Tether has to do with its claims that it is pegged to the U.S. dollar, according to Bloomberg. As of earlier this week, there were roughly $2.3 billion in Tether coins outstanding, and the company said it holds a reserve of U.S. dollars backing the coins. The company has never verified these claims, and some traders doubt that the money is there.

Price Manipulation?

A number of bitcoin traders are concerned that Bitfinex and Tether have been used to artificially inflate the price of bitcoin in recent months, The New York Times reported. Despite claims that Tether is backed by U.S. dollars, traders note that hundreds of millions of dollars in new Tether coins have been created in recent months, particularly during times when cryptocurrency prices began to drop. Those new Tether coins were then used to make huge bitcoin purchases on Bitfinex, often halting or reversing the sell-offs.

“This became more and more concerning, because every time the markets went down, you have seen the same thing happen,” Pantera Capital co-chief investment officer Joey Krug said, according to the Times. “It could mean that a lot of the rally over December and January might not have been real.”

Markets React

Bitfinex and Tether worries sent bitcoin prices lower by another 6.9 percent on Thursday. Ripple and Bitcoin Cash were also down 9.8 percent each.

After a huge run-up in 2017, the Bitcoin Investment Trust GBTC is now down 39.6 percent in 2018.

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