Analysis: The Tether scandal can cause a large compression or contraction of Bitcoin
Last week, the cryptographers community was shocked when the New York Attorney General’s Office (NYAG) revealed that Tether Limited, the USDT asset issuer, and the world-renowned Bitcoin Exchange (BTC), Bitfinex may be in a precarious financial situation.
However, respected sources claim that Bitfinex is trying to get out of the supposed thin ice, potentially through an agreement that could be valued at up to $ 1 trillion.
Bitfinex IEO could be on the horizon
First, let’s briefly look at how Bitfinex, based in Hong Kong, arrived, one of the first Bitcoin exchanges, to a point where it would consider raising $ 1 billion.
For those who missed the information, last Thursday, the NYAG, Letitia James, stated that iFinex, the controlling company of Tether and Bitfinex, could participate in “ongoing activities that may have defrauded” the investors of the cryptocurrency. A 23-page document signed by Brian Whitehurst, the Deputy Attorney General, revealed more about the situation.
It was stated that according to the authorities’ investigations, Bitfinex currently has a $ 850 million hole in its books, due to the inability to obtain these funds from Crypto Capital, a payment processor based in Panama. It is believed that Crypto Capital has assets under its management frozen by government entities in Poland, Portugal and the United States.
As a result, Bitfinex entered a frenzy, purportedly seeking funds to satisfy customer withdrawal requests and business expenses.
Finally, the administration of the exchange determined that the best course of action would be to secure a line of credit with the affiliate Tether Limited, the firm that is behind the USDT deposit. Whitehurst then revealed that Bitfinex still has a $ 700 million credit line, backed by shares in iFinex, open with Tether.
As the prominent trading platform is still supposed to be in debt to Tether, rumors have begun to swirl around how the exchange will pay off its debts. According to Dovey Wan, the founding partner of Primitive Ventures, the company plans to raise $ 1 billion through the sale of tokens with the Bitfinex brand and an initial offer of coins in the platform, more commonly known as IEO. What is remarkable is that these $ 1 billion will be mainly raised in USDT, not in Bitcoin.
This may seem crazy, but Wan was the first English-speaking Crypto Twitter to report the news of the Bithumb hack last month and that Bitmain fired more than half of its employees and lost its then CEO, Jihan Wu
A Twitter from “Zirui” later confirmed this rumor. Citing a statement by Zhao Dong, a legend of the Chinese cryptocurrency that owns shares in Bitfinex, he explained that there is a “high possibility” that the exchange is made with an IEO, since some “whales” have already secured positions in the next agreement with $ 300 million USDT.
Bitcoin shorts continue to shoot as fears multiply
All this may seem innocuous, but Wan postulates that this attempt to increase a ten-figure sum could be a sign that Bitfinex is not all it needs. He explains that if the exchange is “highly positive for cash flow” and he is not concerned about NYAG threats, why did he originally take a loan from Tether and why does he intend to host an IEO?
In other words, he was worried that this would confirm that the exchange is really in the hot water with the regulators, or that he might be trying to cover up his books.
No matter what the truth is, the market has come to the conclusion that something is not right. Since NYAG published its report, the number of Bitcoin short contracts opened in Bitfinex has increased from 25,000 to 29,894, an increase of 20% in less than a week, as investors expect for this debacle to continue to implode, thus depressing the BTC value.
Alistair Milne, the investment director of the Atlanta Digital Currency Fund, however, says the signs point to a brief compression or contraction.
In a recent Twitter post, the investor observed that Bitfinex users liquidated their Bitcoin and withdrew the funds en masse, along with margin financing rates on the platform that shot up to 0.09% per day, there is a “high risk” of a very significant short “, to tighten, especially if BTC withdrawals continue.” Milne did not disclose where BTC could go as a result of the potential for price compression or contraction.
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.