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Friday Inferno market update

Friday Inferno market update


It’s happened. Finally. And it’s still happening. Hold onto your trousers, people.


And thus did it come to pass, that the shadowy demon known as Bitfinex did purloin the reserves of its Evil Twin, Tether. And USDT did become unTethered and traded at prices somewhat different to the $1 claimed by Tether, which was hardly unsurprising given that $850 million had gone walkabouts from their coffers.


And their acolytes did get the hell out of Dodge and sell their stinky Tethers pronto, and all the crypto traders in the land did bail out of bitcoin and alts, and all coins did slide most rapidly towards the Abyss.


What the markets say

So far, the slide has been no more than a modest 9% or so, which isn’t really so bad when you consider what bitcoin is capable of. The four-hourly candle late last night registers a $500 drop, before a bounce. We’re going to assume for the moment that it’s the kind of bounce a dead cat performs when dropped from a great height, because this round of FUD is definitely not over.


So what happened?

For background, take a look at this article from Fortune. The short version seems to be that Bitfinex’s payment processor, Crypto Capital, was taking a very long time to process withdrawals, meaning that a large amount of money was locked up with them. Very large.


To cover the shortfall, Bitfinex raided the Tether account of $850+ million, ‘backing’ those dollars with a line of credit.


So what next?

All of this has been a long time coming. Here at Inferno we have constantly warned that Bitfinex and Tether’s opaque approach to their reserves and the fact that the two companies are essentially the same represents a fundamental conflict of interests, and may be masking serious fraud.


Now, the cat is out of the bag. The New York Attorney General’s filing states that Bitfinex used Tether funds to pay customers who needed withdrawals, and never disclosed the $850 million problem to their users.


Well, all bets are off, really. We don’t know how systemically serious this might be, and so what the end result might be in fundamental terms. We also know that crypto markets can be highly emotional, capable of overdoing both the selling and the buying. But we also know they tend to shrug off news they don’t want to hear.


In short, this could be as bad as it gets. Or it could get a lot worse. Hedge accordingly.

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