Bitfinex is a Hong Kong-based cryptocurrency exchange owned by iFinex Inc. It is one of the biggest exchanges in terms of volume traded. 10% of the world’s trading happens on this exchange. The exchange has also had its fair share of controversies. For instance, there is the infamous hack that resulted in the loss of 120k Bitcoins in 2016. We will take a close look at Bitfinex and what the future may hold for it. Is it likely to grow bigger and better? Should we expect more controversies?
Bitfinex was established in 2012 for trading cryptocurrencies. It has since then grown to become one of the largest cryptocurrency exchange platforms with over 10% of the overall global volume. Bitfinex is one of the world’s most advanced cryptocurrency exchanges. It facilities USDT (Tether) based trading of Bitcoin and other cryptocurrencies. USDT is another cryptocurrency pegged at a value of 1 US dollar. Exchange trading, margin trading and margin funding are all allowed on the exchange.
Bitfinex is web-based but has a mobile app too. Technical analysis can be easily done on the exchange since charting enabled by TradingView is provided. As a result, one gets a lot of technical analysis tools to predict future price trends and trade accordingly. In fact, most trading analysts prefer to use Bitfinex charts when doing their analysis.
The Bitfinex order books are fully transparent, unlike that of some other exchanges. Users can take a look at the sell/buy walls and use the information to guess the overall global trend of a coin in terms of where the price might go in the near future. Fees charged by Bitfinex are relatively fair considering the quality of service they provide to users.
Bitfinex was hacked in August 2016. $60 million worth of Bitcoin was stolen in this hack. A total of 120k Bitcoins was lost during this hack. It is considered one of the darkest days in the history of Bitfinex and Bitcoin at large. The Bitcoin price crashed from 750 dollars to 480 dollars on that day. This hack is the second biggest loss of bitcoins. Only in the 2014 Mt. Gox saga has more Bitcoin been stolen.
The vulnerability was due to the partnership with a wallet provider known as Bitgo. Bitfinex integrated Bitgo for an additional layer of security on transactions by creating a multi-signature wallet. The keys were divided among the owners to avoid risk. This created the vulnerability and customers were shocked to see their accounts go dry on that day.
It was alleged that Tether, the cryptocurrency pegged to the US dollar, was being used to artificially push up the Bitcoin price on Bitfinex. Bitfinex and other exchanges like Poloniex use USDT (tether) for buying cryptocurrencies instead of actual USD. Tether was first launched in 2015
Both Tether and Bitfinex share the same management. Phil Potter is the chief strategy officer at Bifinex as well as director at Tether. Bitfinex was accused of printing USDT out of thin air and propping up the price of Bitcoin. It was reported that whenever tethers flow to Bitfinex exchange ,the prize of Bitcoin starts to rise further upwards.
The Cryptocurrency community became preoccupied in discussing this potential conflict of interest on social media and one group of Bitfinex and tether supporters started to defend the exchange and dismissed the accusations as mere FUD. But the opposite group wanted an independent audit by Tether to prove that all the USDT available in the market should be backed by real USD. They pressurized the management to appoint an independent auditor to examine if Tether was really backed by real money. At that time, Tether had a market cap of 2.2 Billion dollars. Many were very suspicious of the figure and wondered if there were real dollars behind it.
Notably, Tether was working with an independent auditing company Friedman LLP but due to misunderstandings, Tether announced that their relationship with Friedman was dissolved. Below is the exact statement from the spokesperson of Tether
“We confirm that the relationship with Friedman is dissolved. Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame. As Tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success.”
This brought about further suspicion with the dollar pegged cryptocurrency company. Later in December 2017, cryptocurrency exchange Bitfinex and Tether were Subpoenaed by the U.S. Commodity Futures Trading Commission, but Bitfinex dismissed this as a routine legal process from law enforcement agents. This news of US authorities sending a Subpoena created a lot of negative sentiments and the price of Bitcoin fell further.
It has still not been proven by the exchange or Tether that they have the sufficient funds to cover the market cap of USDT. The USDT market cap at the time of writing is 2.2 Billion dollars and we strongly hope that they have the required money to back their claims, if not we could see another big fall in the price of Bitcoin if it all comes crushing down.
This controversy has since died out but it would be great if Bitfinex is able to resolve the issue once and for all. Getting that sorted out and continuing to serve customers well should be enough to maintain their status as a top cryptocurrency exchange for the foreseeable future. Of course, they would also have to devise a strategy for navigating the increasingly unfriendly regulatory environment in various jurisdictions.