The cryptocurrency market suffered a huge blow yesterday when the New York State Attorney General (NYSAG) announced that it is suing Bitfinex and affiliated firm Tether (USDT). The suit alleges that Bitfinex and Tether engaged in “undisclosed, conflicted transactions to cover Bitfinex’s losses by transferring money out of tether reserve funds.” It is alleged that Bitfinex commingled client funds through Crypto Capital, in other words, the firm mixed client funds with its own capital. Furthermore, according to the attorney general’s office over $700 million was drained from Tether’s reserves. The court has reportedly ordered the operators of both companies to immediately cease the dissipation of United States dollars that back Tether tokens and to produce investigation-related information and documents.
The panic selling that immediately ensued saw Bitcoin crash from $5,500 to $5,000 before stabilizing in the area during Asian trading hours. At the same time, Ethereum (ETH), which was trending higher towards the psychologically important 200 USD mark is now on track to descend below the $150 level. The concerns surrounding Bitfinex and Tether may not be entirely unheard of, but the concrete fact that a lawsuit has been filed—by the New York State Attorney General (NYSAG) no less—suggests that the US is getting serious about regulating crypto.
Something to point out is that Bitfinex will probably argue that it had borrowed the funds from Tether, at a fair interest rate for the loan and also pledged shares as collateral. The big question is…who is next? Finally, the Bitcoin futures curve is downward sloping again, in firm backwardation mode and similar to its pre-early April surge higher.
In other news, MakerDAO is set to increase DAI fees above 15% in a bid to stabilize the stablecoin. This time, the prevailing vote was to increase fees by 2%, which, in comparison to past weeks, is a comparatively small increase to the usual 3% or 4%. As is custom, the 2% increase will undergo a secondary round of polling starting tomorrow and be executed once a certain threshold of voter participation is met.
Genesis Global Capital wrote $425 million of crypto loans in the first quarter, bringing its total originations since the business launched in March 2018 to $1.53 billion. Of their loan book, Bitcoin-denominated loans made up 68 percent, XRP loans 6.7% and Ethereum and Litecoin loans 3.6% each. But perhaps most notably, short sellers now account for only 3-5% of Genesis’ Bitcoin loans, down from about half in early 2018.
Thank you for reading,
The BeQuant’s Analytics team