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Something is very worrisome with the world’s biggest bitcoin exchange

Things are getting weirder and weirder with Bitfinex

Bitcoin on a fishhook.

Something smells fishy. Just hope it’s not because you’re a fish on a hook (Photo via Shutterstock).

Bitcoin’s price is being met with tough skepticism lately, with worry stemming from an exchange called Bitfinex and a cryptocurrency called Tether, created by the founders of Bitfinex. Earlier this week, Bloomberg broke the news that they were subpoenaed by the U.S. Commodity Futures Trading Commission back in December.

Bitfinex is believed to host more crypto trading than any other exchange in the world. The Tether cryptocurrency is pegged to the dollar—tokens always cost $1 USD—imbuing it with a certain street cred that makes it useful for purchasing other cryptocurrencies.

But watchful eyes noticed that gobs of new Tether were created at times when other cryptocurrency prices were crashing. This new Tether was then believed to have been used on Bitfinex’s exchange to buy lots of bitcoin and other currencies, sending their prices back up. The allegation is that Bitfinex “printed money” to invest in other currencies, preserving their value while simultaneously maintaining trading activity on its platform. Data from CryptoMarketCap show Tether’s market cap has gone from just under $1.39 billion at the start of this year to $2.23 billion by the end of January. All the while, the price remained at a buck.

Tether's market cap rises while prices remain the same. That's due to more quantity.

Tether’s prices versus market cap. Prices stay flat while market cap soars…. What could possibly go wrong? (Source: CoinMarketCap)

This could be easily put to rest if Bitfinex cooperated with an auditor, a process that the company engaged in for a moment. Bitfinex was working with audit firm Friedman LLP to demonstrate that its operations are above board, but this relationship is no more as of last week. It’s unclear who got rid of whom; the specific language from Bitfinex is that the relationship “dissolved” upon the realization that Friedman’s audit would take a long time to complete. However it went down, it’s not a good look when the company working to clear your name can’t complete its task.

This turn of events only adds to Bitfinex’s dubious history—its origin story can be read in the scandal-riddled Paradise Papers, which show that an offshore law firm helped the New York-based founders establish Tether in the British Virgin Islands. Bitfinex issued a document designed to prove that every Tether was backed by a dollar in a bank account, but an expert picked it apart. Claiming external hacker attack each time, Bitfinex lost $400,000 USD worth of bitcoin in 2015, $75 million USD in August 2016, and $30 million in November 2017.

The pattern isn’t flattering, and the accusations of foul play are strong. The question on the crypto-community’s mind today certainly goes something like this: Are bitcoin and other currencies being illegitimately propped up by industry players?

Bitcoin reached a two-month low today, dipping below $9,000.

Dylan Love is an editorial consultant, contributing reporter, and fiendishly curious technology enthusiast. He owns no cryptocurrencies.