DEVELOPMENT
Let’s look in two parts at manipulators and manipulation in the crypto market in 2017-2018.
In the first part we will talk about Manipulators (participants of the Scheme).
In the second part (the next article) we will talk about manipulation of USDT itself and we will benefit from information about the participants of the Scheme.
Part 1. Manipulators
Scheme Participants
In 2015-2018 there was a situation in the market in which exchanges could not constantly and legally work with fiat currencies, especially the U.S. dollar. Banks from different countries of the world refused to provide them with banking services. On this background there appeared intermediaries, acting as “payment processors”. A large scheme was formed that ensured the operation of BitFinex/Tether businesses and manipulation of USDT.
Let’s unravel this topic and look at the relationship between exchanges and “payment processor”.
The basic composition of the participants in this scheme:
- DigFinex Inc.
DigFinex Inc. serves as the ultimate parent company of Bitfinex and Tether.
In part because of DigFinex’s joint ownership and control of Bitfinex and Tether, Bitfinex and Tether are “essentially the same thing,” a fact DigFinex has long concealed. DigFinex is registered in the British Virgin Islands.
Key personnel:
Ludovicus Jan van der Velde (“Velde”) is a Dutch citizen and Chief Executive Officer (“CEO”) of iFinex Inc., BFXNA Inc., BFXWW Inc. and Tether Limited, positions he has held since early 2013.
Velde is one of two directors on the corporate registers of DigFinex, iFinex Inc. and Tether Limited; is a shareholder of DigFinex and Tether Holdings Limited; and is a shareholder of DigFinex.
Giancarlo Devasini is an Italian citizen and Chief Financial Officer (“CFO”) of Bitfinex and Tether. Along with Velde, he is another director listed on the corporate registers of DigFinex, iFinex Inc. and Tether Limited; and he is a shareholder of Tether Holdings Limited and DigFinex. Allegedly, Devasini was involved in the creation of Bitfinex.
Philip J. Potter is a New York City resident and co-founder of Tether. He was the Chief Strategy Officer (“CSO”) of Bitfinex and Tether from about 2013 until “around the end of February 2018.” Potter is a director of Tether Holdings Limited and a shareholder of DigFinex.
- iFinex Inc.
iFinex Inc. owns and operates a crypto-exchange called “Bitfinex” and is a holding company that fully owns BFXNA Inc. and BFXWW Inc. iFinex Inc. is registered in the British Virgin Islands.
- BFXNA Inc. and BFXWW Inc. – are legal entities of the Bitfinex exchange
BFXWW Inc. – the legal entity of the Bitfinex exchange for non-U.S. citizens.
BFXNA Inc. – the legal entity of the Bitfinex exchange for U.S. citizens.
Both companies are registered in the British Virgin Islands.
- Crypto Capital Corp.
The company operated as a “payment processor” that offered banking services for cryptocurrency exchanges. Crypto Capital Corp. (“Crypto Capital”) is registered in Panama.
- Tether Holdings Limited
Tether Holdings Limited, is a holding company (for Tether Limited, Tether Operations Limited and Tether International Limited) and is registered in the British Virgin Islands.
Tether Limited is registered in Hong Kong.
Tether Operations Limited, Tether International Limited are registered in the British Virgin Islands.
- Bittrex, Inc. and Poloniex, LLC
Bittrex, Inc. and Poloniex, LLC operate their own cryptocurrency exchanges. They were founded in 2014.
In this case, both exchanges have been so-called “cryptocurrency exchanges” for most of their time, allowing their customers to exchange only different cryptocurrencies for each other and refusing to offer deposits or exchanges based on fiat.
Bittrex is registered in Delaware, USA, with its principal place of business in Washington, DC.
Poloniex is registered in Delaware (USA) with its principal place of business in Massachusetts.
All of them participated in a scheme of large and timely purchases of cryptocurrencies using USDT to signal to the market a huge natural demand, thus conditioning the price of cryptocurrencies, creating and maintaining a bubble in the cryptocurrency market.
Tether is the central authority and issuer of USDT, the “stabelcoin,” so named because it is supposedly tied to and backed by U.S. dollars held in Tether’s reserve.
Tether claims that each USDT in circulation is backed by a dollar in a Tether bank account, and holders can exchange their USDT for those dollars anytime they wish. Thus, USDT was considered the digital equivalent of U.S. dollars.
USDT is the most widely traded cryptocurrency in the world by trading volume and the third largest cryptocurrency in the world by market capitalization at $68 billion.
In 2019, Bitfinex and Tether claimed that USDT had a near-perfect monopoly in the staplecoin market, accounting for 98.7% of global staplecoin trading volume;
There is another key player in this scheme – the company Crypto Capital.
History of Crypto Capital’s past and its close ties to the crypto industry
Crypto Capital is a Panamanian company that provided shady banking services to several cryptocurrency exchanges, including Bitfinex, Binance, Cex.io, Coinapult and QuadrigaCX.
Where did Crypto Capital come from? Who is really behind it?
Crypto Capital emerged in 2013, supposedly Reddit user u/bitfan2013 was the founder of the firm. In May 2013, u/bitfan2013 posted a message on the r/Bitcoin subreddit, researching community opinion on a proposed bank that would include a means of converting between BTC and fiat currency, in addition to providing services to companies in the crypto sector. The post suggested that “a true fiat bank from the ground up would be created by bitcoin users, miners, vendors and developers for the purpose of doing business in bitcoin and exclusively with virtual currencies.”
He claimed that he and his family were on the board of directors of four “small and medium-sized private banks” in Panama. A little later, u/bitfan2013 announced that it was ready to “offer private international banking to bitcoin customers, sellers, and traders.”
In June 2013, Crypto Capital (then operating as Crypto Financial) launched and then conducted an initial public offering to raise 30,000 BTC through Panamanian company Havelock Investments in August 2013. Havelock Investments has often been accused of fraudulent ICOs.
By 2015, Crypto Capital had attracted several well-known exchanges as clients, providing services such as Bitfinex and Coinapult.
The “technological core” of Crypto Capital
A considerable role in formation of Crypto Capital was played by Coinapult, a Panamanian service being a “technological core” for Crypto Capital.
Initially Coinapult service allowed sending bitcoins via e-mail and SMS and then it turned into a kind of exchange. The rate was taken directly from Bitfinex.
The service itself was founded in 2012 by well-known entrepreneurs Eric Voorhees and Ira Miller, and received development funds from Barry Silbert and Roger Vera.
In September 2018, reporters from the Wall Street Journal said that $9 billion was laundered through the ShapeShift exchange owned by Eric Voorhees.
Crypto Capital’s API was developed by Ira Miller. Additionally, he developed software for ultra-secure bitcoin machines.
He also created clients for the most popular cryptocurrency exchanges and exchanges: Bitfinex, Bitstamp, Btcchina, Huobi, Kraken, Poloniex, ShapeShift, etc.
Later, Coinapult additionally integrated with Mycelium, Safello and DASH cryptocurrency wallets.
Filling the banking void
Crypto Capital filled a particular need in the burgeoning crypto world: it provided banking services to cryptocurrency companies when traditional banks were avoiding them like the plague.
The company quickly became a popular company for crypto businesses around the world despite the fact that it was a largely anonymous organization with no employees or addresses listed on its website. And it wasn’t just fringe cryptocurrency companies and scammers who took advantage of it. Many reputable companies signed up as well.
For example, the reputable San Francisco-based exchange Kraken used Crypto Capital, but stopped cooperating in early 2017. Binance also worked with Crypto Capital for a while.
Crypto Capital has also been in the worst circles of the crypto world and has been featured in at least one major scandal.
Notably, the now infamous QuadrigaCX, the largest crypto exchange in Canada, was a valued Crypto Capital client. QuadrigaCX was a client when the Canadian exchange suddenly closed after the mysterious death of its CEO Gerald Cotten in December 2018. According to chat logs between Gerald Cotten and QuadrigaCX operations manager Aaron Matthews, he used Crypto Capital to hold client money.
The people behind Crypto Capital
Crypto Capital’s executives have been well hidden. Not a single member of the team was listed on the company’s website, let alone anything else that would give a clue as to who runs the company. Nevertheless, anyone who wanted to take a closer look would simply have been stumped to discover that the same director runs the different companies: Ivan Manuel Molina Lee.
Ravid Yosef, Reginald Fowler and Oz Yosef, the people behind Crypto Capital
Ravid Yosef is a shareholder in Global Trade Solutions LLC, a British company with the same name as the Swiss company that owns Crypto Capital.
Reginald Fowler, a resident of Arizona, USA, acted as an employee of Crypto Capital and was responsible for setting up shell companies and opening bank accounts that could be used by Bitfinex and Tether to process U.S. dollars and other currencies.
Scheme of the relationship between the companies:
Reginald Fowler and Ravid Yosef, who live in Tel Aviv, Israel, were part of a scheme that involved using bank accounts to transfer money to a number of unnamed cryptocurrency exchanges.
The two “opened and used numerous bank accounts at financial institutions that were insured by the [FDIC],” including one based in Manhattan.
Reginald Fowler and Ravid Yosef allegedly operated a shadow bank that handled hundreds of millions of dollars in unregulated transactions on behalf of numerous cryptocurrency exchanges.
Cryptocapital connection
Crypto Capital has gradually become the central bank of the crypto industry. It facilitated banking from one end of the industry – large cryptocurrency companies and exchanges including Binance, Kraken, Bitfinex and BitMEX – to the other, including the now defunct QuadrigaCX and a number of smaller companies implicated in money laundering and fraud schemes.
At the same time, Bitfinex and Tether were having more and more banking problems:
From 2016 to March 2017,
Bitfinex and Tether used several Taiwanese banks to make and receive bank transfers to fulfill customer orders in U.S. dollars, with Wells Fargo acting as the correspondent bank.
In March 2017, Wells Fargo refused to process U.S. dollar transfers from Bitfinex and Tether accounts.
In November 2017, Bitfinex began offering customers to deposit funds into Crypto Sp. at Bank Spółdzielczy w Skierniewicach in Poland.
They also offered customers to deposit funds into Switzerland’s Global Trade Solutions A.G. through the Portuguese bank Caixa Geral de Depositos.
Global Trade Solutions is the parent company of Crypto Capital.
By September 2018, accounts owned by Global Trade Solutions were being used to facilitate fiat transactions for Bitfinex through several U.S. banks, including Citibank, HSBC and Enterprise Bank & Trust.
In October 2018, Puerto Rican company Noble Bank* terminated Bitfinex banking services. Bitfinex and Tether terminated their relationship with Noble Bank due to its inability to handle large volumes of wire transfers.
In November 2018, Tether announced a banking relationship with Deltec Bank & Trust Limited*, based in the Bahamas.
* Noble Bank (Puerto Rico) and Deltec Bank (Bahamas The Bank of New York Mellon was the main bank used by Noble Bank (Puerto Rico). They were not banks, but at the same time provided banking services, using the “infrastructure of a real bank” – the spacers between the exchanges and the banking system.
Problems at Crypto Capital
Crypto Capital’s method of operation was simple. Create a shell company to get a bank account and use it until it is closed. Then find another bank.
Bitfinex Chief Strategy Officer Phil Potter described such a strategy as using “cat-and-mouse tricks that everyone in the crypto industry should take advantage of.”
One of Crypto Capital’s first “ports of call” was a company called Global Transaction Services, which Crypto Capital used until early 2016. It was an Atlanta, Georgia-based payment processor that used a local bank in Brazelton, Georgia, and a bank account owned by a shell company.
It appeared to belong to Daniel Barrs of the United Kingdom, who was indicted in May 2016 for running a massive money-laundering operation. Soon after, Crypto Capital began using banks around the world, including in Poland, the United Kingdom and the United States.
QuadrigaCX chief architect Alex Hanin accused Crypto Capital of having problems withdrawing funds from its exchanges before it collapsed. He said funds were blocked in one of Crypto Capital’s Taiwanese bank accounts. It is unclear whether the funds were ever unblocked.
The relationship between Bitfinex and Crypto Capital is deteriorating
Bitfinex’s partnership with Crypto Capital began to deteriorate in April 2018 after reports in March 2018 that Polish authorities seized about $350 million from an account belonging to Crypto Capital Crypto Sp. subsidiary at Bank Spółdzielczy w Skierniewicach for alleged links to Colombian cartel operations.
Crypto Capital director Ivan Manuel Molina Lee was arrested by Polish authorities on suspicion of laundering about $350 million in illicit proceeds and ties to a transnational drug cartel.
Crypto Capital dissolved and liquidated in June 2018, and has since been run by Global Trade Solutions.
In August 2018, Crypto Capital informed Bitfinex that about $500 million of Bitfinex funds had been “detained” by authorities in Poland and Portugal.
When Bitfinex demanded proof of the frozen funds, Bitfinex was issued a letter stating that more than $300 million in Bitfinex funds were being held at TCA Bancorp by Global Trade Solutions A.G., acting as Crypto Capital.
In the fall of 2018, Bitfinex was having serious problems with withdrawal requests from its customers because the cryptocurrency exchange essentially had no money to pay them.
In October 2018, rumors began circulating online that Bitfinex customers could not withdraw their money. That same month, the exchange issued a series of public statements saying that such rumors were “a targeted campaign based only on fiction.” Specifically, on October 15, 2018, Bitfinex announced that “all cryptocurrency and fiat payments are processed and handled as usual without the slightest interference.”
This was untrue, because on the same day, a senior Bitfinex executive wrote to his contact at Crypto Capital that “too many withdrawals are pending for a long time,” so he needed money from Crypto Capital urgently, “in Tether or any other form.”
Indeed, at the time, Bitfinex had to temporarily suspend fiat deposits in four fiat currencies — the euro, the U.S. dollar, the Japanese yen and the British pound — without giving a reason for the suspension.
At one point, an unnamed Crypto Capital representative explained to a senior Bitfinex executive that $850 million could not be returned to the crypto exchange because it had been confiscated by government agencies in Portugal, Poland and the United States.
Bitfinex and Tether did not believe that the money had indeed been confiscated.
In early 2019, Crypto Capital’s partnership with Bitfinex drew the close attention of the New York prosecutor’s office because of suspicions that BitFinex had liquidity problems: the exchange claimed that liquidity problems were caused by the inability to access its $850 million in funds that were held by Crypto Capital.
In turn, Bitfinex sued former TCA Bancorp vice president Rondell Clyde Monroe, with the exchange claiming that Monroe had information regarding its funds held at Crypto Capital. Bitfinex alleged that TCA Bancorp provided banking services to Crypto Capital, alleging that the firm “used one or more accounts at TCA Bancorp to facilitate the transfer of funds.”
Bitfinex stated that it had “had a string of failed banking relationships around the world over the past few years” because many financial institutions did not want to do business with “unregulated or offshore companies” associated with cryptocurrencies.
Crypto Capital has acted as a “payment processor” for Bitfinex and Tether, handling more than $1 billion of its mixed client and corporate funds, but “no contract or similar written agreement was ever entered into between Crypto Capital and Bitfinex or Tether.
“Credit Line”: How Bitfinex (allegedly) used Tether reserves
In February 2019, attorneys for Bitfinex and Tether said their clients were “contemplating a transaction that would allow Bitfinex to use Tether’s cash reserves as needed” to cover costs – the missing $850 million.
Specifically, Bitfinex would take a “line of credit” of $600 million to $700 million from the reserve funds supporting Tether.
The transfer of $625 million from Tether reserves to Bitfinex, presumably occurred in November 2018:
“In November 2018, Tether transferred $625 million from its Deltec account to a Bitfinex account at Deltec. Bitfinex, in turn, made a transfer of a total of $625 million from its Bitfinex account at Crypto Capital to Tether’s account at Crypto Capital via a ledger entry at Crypto Capital, crediting Tether with $625 million and debiting Bitfinex with the corresponding amount. The purpose of this exchange was to allow Bitfinex to address liquidity issues.”
Opening a case on fraud charges
On April 25, 2019, New York Attorney General Letitia James announced: “Our investigation has determined that Bitfinex trading platform operators, who also control the virtual currency Tether, engaged in a cover-up to conceal an apparent loss of $850 million in mixed customer and corporate funds.”
The court order requires the companies’ operators to immediately stop further embezzlement of the dollar assets that support the “tether” tokens while the Office’s investigation continues, and to produce documents and information, including materials requested by earlier Office-issued investigative subpoenas. Companies are also prohibited from destroying, deleting, or allowing others to delete potentially sensitive documents and communications, including documents and communications stored in any self-deleting or “ephemeral” computer applications.
A chronology of the prosecutor’s office’s activities:
In September 2018, the Attorney General’s Office released a report on the Virtual Markets Integrity Initiative, which outlined the office’s findings about the practices of “virtual asset trading platforms” that were operating or believed to be operating in New York. Among the findings outlined in that report, the office highlighted the “substantial potential for conflicts between the interests of the platform, platform insiders, and platform customers.”
In November 2018, the attorney general issued subpoenas to Bitfinex and Tether, which are owned and operated by the same small group of individuals and claim not to do business in New York. According to court documents filed by the Attorney General’s office, Bitfinex’s trading platform allows New Yorkers to buy and trade virtual currencies, including so-called Stablecoin, a virtual currency the companies have long claimed is “secured 1-to-1” in U.S. dollars held in a cash reserve.
On April 25, 2019, a fraud case was opened against Bitfinex and Tether.
After the fraud case was opened, a panic sale of USDT tokens for Bitcoin began on the Bitfinex exchange as the fiat gateways were down. Customers poured from USDT to Bitcoin – the Bitcoin exchange rate began to skyrocket.
As a result, a bullish rally in Bitcoin began.
May 1, 2019 – Reginald Fowler of Crypto Capital Corp. is charged with fraudulently transferring tens of millions of dollars in Tether funds from Crypto Capital to his personal accounts.
May 5, 2019 – High-ranking Crypto Capital officials Reginald Fowler and Ravid Yosef are charged for their involvement in a money laundering scheme for Colombian cartels and committing bank fraud.
Oct. 25, 2019 – Crypto Capital Corp director Ivan Manuel Molina Lee was arrested on charges of laundering money for Colombian cartels through Bitfinex. Bitfinex denies knowingly participating in the scheme.
Feb. 23, 2021 – Bitfinex pays an $18.5 million fine and agrees to stop trading USDT in New York to settle a case in which the New York attorney general alleged that the exchange covered up large financial losses. The exchange did not admit wrongdoing as part of the settlement.
July 26, 2021 – U.S. Department of Justice launches investigation into alleged bank fraud committed by Tether executives with alleged false statements to banks.
Oct. 15, 2021 – CFTC fines Tether and Bitfinex $42.5 million. Tether is fined $41 million for making false claims that USDT is fully collateralized by U.S. dollars. Bitfinex is fined $1.5 million for illegal transactions on its exchange and violating a previous CFTC order issued on June 2, 2016.
Tether and the auditor’s report from BDO Italy
On August 19, 2022, Tether Holdings Limited released its latest quarterly audit report from BDO Italy, one of the world’s top five accounting firms.
As of June 30, 2022, BDO confirmed a more than 58 percent decrease in Tether’s commercial paper holdings from the previous quarter of $20 billion to $8.5 billion.
By the end of August 2022, the commercial paper stock will be down to $200 million and zero by the end of the year. Over the same period, Tether increased its cash and bank deposit holdings by 32%.
You can read the latest audit report and consolidated reserves report here.
Company management states the following as of June 30, 2022:
- The Group’s consolidated total assets are at least $66,409,619,424.
- The Group’s consolidated total liabilities are $66,218,725,778, of which $66,204,234,509 relates to digital tokens issued.
- The Group’s consolidated assets exceed its consolidated liabilities.
The latest report also shows that the average rating for commercial paper and certificates of deposit has improved and continues to be in the A-1 to A-2 range.
A little about BDO
BDO or Binder Dijker Otte is an international network of audit, tax, consulting and business advisory firms that provide professional services under the name BDO. BDO is the fifth largest accounting network in the world.
Founded in 1963 as the Binder Seidman International Group by firms from Canada, Germany, the Netherlands, Great Britain and the United States, the network is coordinated by BDO Global Coordinate BV with an office in Zaventem, Belgium.
Importantly, each BDO member firm is an independent legal entity in its own country.
Tether, which has the most problems with the U.S. authorities, has repeatedly tried to have its reserves audited by major U.S. audit firms in 2021-2022, but all major audit firms have declined to audit Tether (including BDO USA).
Why did Tether find an auditor in Italy?
At the beginning of this article, I mentioned that DigFinex Inc. acts as the ultimate parent company for Bitfinex and Tether.
Recall one of the key employees of the parent company DigFinex Inc:
Giancarlo Devasini is an Italian national and Chief Financial Officer (“CFO”) of Bitfinex and Tether. Along with Velde, he is another director listed on the corporate registers of DigFinex, iFinex Inc. and Tether Limited; and he is also a shareholder of Tether Holdings Limited and DigFinex. Allegedly, Devasini was involved in the creation of Bitfinex.
Does the BDO Italy report mean that the report is biased or not correct? I think that the report is correct and is properly compiled. I’m not an auditor and I can’t assess whether the audit was done according to all rules and norms of international standards.
I assume that other auditors didn’t want to get involved with Tether due to its tarnished reputation and non-transparent past periods.
And since BDO is a network of legally independent entities, it is much easier to agree on an audit with a separate legal entity in Italy than in the U.S..
About Paradigm and the Bitcoin dump in December 2018
While gathering information about the Paradigm fund, it became clear to me that there is the work of elites close to the Manipulator here.
For those who haven’t read the article about the Paradigm fund, I recommend reading that article and then continue reading this article next.
Let’s link Paradigm+Universities and BitFinex+Tether+Crypto Capital.
Here is the part we need from the Paradigm fund article.
Paradigm picked the perfect time to emerge, it was anything but an accident. At the height of the bitcoin craze in 2017, Fred Ehrsam stepped down as president of Coinbase, the $8 billion cryptocurrency marketplace he had founded with Brian Armstrong five years earlier.
Let’s add content to this story and talk a little bit about “coincidences.”
- Paradigm fund launches in summer 2018 in a very right bear market phase
- the founders of Paradigm left their previous jobs (Sequoia and Coinbase), clearly for something more interesting than they had before.
- Gary Gensler’s famous public course on cryptocurrencies at MIT began in September 2018. Since these deals are prepared very in advance, it was time to prepare Gary Gensler to teach a course on cryptocurrencies at MIT. Although MIT is not listed as an investor from the universities, I think you realize it’s all one team. MIT was chosen as the best fit for this role. Gary Gensler mentions (in his course) that he was trained for 6 months to teach a course on cryptocurrencies. It turns out, preparing to teach the course, he started around April 2018.
- In October 2018, universities give $400 million to the Paradigm Foundation.
- In December 2018, Paradigm mainly invests in Bitcoin and Ethereum. Purchases are made at a perfect bottom – the purchase price is below $4,000.
- On news like this, universities allocate another $350 million.
Universities have done what they do best – in parallel with allocating money, they have taken a serious approach to:
- Popularizing the topic of cryptocurrencies.
- Taking the discussion about necessary regulation in cryptocurrency to the next level.
- taught Gary Gensler about blockchain and cryptocurrency technology.
All of this will come in handy in his future as head of the SEC.
I believe that the founders of Paradigm and those around them were aware of the future movement of the market.
Does this mean that they were in close circles with the “manipulator”?
My opinion: yes, they were.
This alone can explain the whole chain of events:
- The allocation of hundreds of millions of dollars to a new fund from the most conservative investors, the universities. They would not have entrusted such money on promises that “the guys would try very hard.
- Buying at the very bottom of the market and after that there was generally only growth (see Bitcoin chart above).
- The allocation of an additional $350 million by universities, after Paradigm had already purchased Bitcoin and Ethereum.
Putting the whole puzzle together
The development of the cryptocurrency market can be divided into several stages:
It is obvious that from 2010 to 2018 there was a kind of anarchy on the cryptocurrency market – the market was flooded with scammers. It was a convenient tool, both to take money from those who should not have it, and a tool to manipulate the market.
Someone had to create conditions for the controlled growth of the fraudsters, with the ability to “regulate” them through government agencies and banks. Where necessary, they allowed the money to go through the banks, and when the moment was right, they took the money away, thereby creating the right conditions in the market.
Chronology of all events:
2013 – creation of the “payment processor” Crypto Capital.
2013 – 2017 – the heyday of “shady” banking services.
2015 – 2017 – BitFinex and Tether, key players on the stabelcoin market and masters of manipulation with USDT (details will be presented in the second part of the investigation).
2017 – 2018 – “shady” banking services begin to fail. The tendency to “tighten the screws” is noticeable. It is more and more difficult to work with fiat, which means maintaining the myth that Tether customers can always exchange USDT for USD.
July 2017 – ICO of the Binance exchange. Binance was supposed to open the second stage of cryptocurrency development, with the conventional name “Yesterday’s Crooks.” While CZ’s past is not unclouded, it was clearly instructed when creating the exchange that the exchange should at least somehow meet regulatory requirements and not be a no-brainer like BitFinex. From that point on, BitFinex’s days as a major player were numbered.
November 13 – December 17, 2017 – Bitcoin pampers to $20,000. The reasons for the plunge will be discussed in Part 2.
December 18, 2017 – CME Group launches Bitcoin futures. It was also announced that NASDAQ is considering launching Bitcoin futures and options trading.
January 2018 – Binance came out on top among crypto exchanges worldwide in terms of trading volume, and CZ made the cover of Forbes magazine.
Spring 2018 – Paradigm negotiates investments with the most conservative investors (universities).
March-August 2018 – accounts of Crypto Capital-related companies are seized in several countries. The main victims are BitFinex and Tether. The losses are about $850 million.
April 2018 – Gary Gensler is trained as a lecturer at MIT on cryptocurrencies. He will become chairman of the SEC in the future.
September 2018 – The Attorney General’s office released a report on the Virtual Markets Integrity Initiative, outlining the office’s findings on the practices of “virtual asset trading platforms.”
September 2018 – the start of Gary Gensler’s public course on cryptocurrencies at MIT. This course brings up the topic of government regulation of the cryptocurrency industry. Starting in 2019, various levels will begin talking about the adoption and regulation of cryptocurrencies.
October 2018 – Universities give $400 million to Paradigm Foundation.
October-November 2018 – Bitfinex is having serious problems with withdrawal requests from its customers because the cryptocurrency exchange essentially had no money to pay them.
November 2018 – Attorney General issues subpoenas to Bitfinex and Tether.
November 2018 – Bitfinex withdraws $625 million from Tether’s bank account at Deltec. In effect, Tether has a “hole in reserves” for that amount.
December 2018 – Bitcoin falls in value below $4,000.
December 2018 – Paradigm is mostly invested in Bitcoin and Ethereum. Purchases are made at a perfect bottom – the purchase price is below $4,000. Universities allocate another $350 million.
March 4, 2019 – Tether is changing the text on its website from
“Each USDT is always backed one to one by the traditional currency held in our reserves. Therefore, 1 USDT is always equivalent to 1 USDT” to
“Each USDT is always backed 100% by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables on loans made by Tether to third parties, which may include affiliates (collectively, reserves). Each USDT is also pegged to the dollar 1 to 1, so 1 USDT is always valued by Tether at $1.”
April 25, 2019 – Attorney General opens fraud case against Bitfinex and Tether.
April 30 – June 26, 2019 – bullish rally for Bitcoin. Price reaches from $5,200 to $14,000.
May 1, 2019 – Reginald Fowler of Crypto Capital Corp. is charged with fraudulently transferring tens of millions of dollars in Tether funds from Crypto Capital to his personal accounts.
May 5, 2019 – Charges were filed against senior Crypto Capital officials Reginald Fowler and Ravid Yosef for their involvement in a money laundering scheme for Colombian cartels and committing bank fraud.
Oct. 25, 2019 – Crypto Capital Corp director Ivan Manuel Molina Lee was arrested on charges of laundering money for Colombian cartels through Bitfinex. Bitfinex denies knowingly participating in the scheme.
Feb. 23, 2021 – Bitfinex pays an $18.5 million fine and agrees to stop trading USDT in New York to settle a case in which the New York attorney general alleged that the exchange covered up large financial losses. The exchange did not admit wrongdoing as part of the settlement.
May 13, 2021 – Tether releases two pie charts as a long-awaited disclosure of its reserves. The largest percentage of its reserves are in commercial paper.
July 26, 2021 – The U.S. Department of Justice begins investigating alleged bank fraud by Tether executives with alleged false statements to banks.
July 27, 2021 – U.S. Treasury Secretary Janet Yellen convenes a closed-door meeting of the President’s Working Group on Financial Markets to discuss Tether. Janet Yellen urges participants to “act quickly” to ensure there are appropriate rules for digital currencies.
August 12, 2021 – Protos reports that more than two-thirds of all issued USDT went to just two cryptocurrencies: Sam Bankman-Fried’s Alameda Research and DRW’s Cumberland Global.
Oct. 15, 2021 – CFTC fines Tether and Bitfinex $42.5 million. Tether is fined $41 million for falsely claiming that USDT is fully backed by U.S. dollars. Bitfinex fined $1.5 million for illegal transactions on its exchange and violating a previous CFTC order issued on June 2, 2016.
August 19, 2022 – Tether Holdings Limited published its latest quarterly audit report by BDO Italy. Asset information as of June 30, 2022 is presented.
What is the bottom line?
Since the early 2010s, almost any cryptocurrency exchange needed a “payment processor” – it was just a necessity.
At the same time, the banking system did not want to deal with offshore and cryptocurrencies. Members of the Scheme ran around the world, opening accounts in different banks. This allowed to ensure the functioning of that part of the business, when the client asked to exchange USDT to USD.
Against the backdrop of the formation of Binance, in early 2018, authorities begin to seize Crypto Capital accounts around the world – this situation sets the stage for BitFinex to have problems.
By the fall of 2018, the BitFinex scheme had actually collapsed + there was an $850 million gap. The exchange no longer had the strength to keep Bitcoin afloat.
In December 2018, Bitcoin drops below $4,000 for many different reasons, not just BitFinex.
At this bottom, Paradigm worked perfectly – buying $750 million worth of Bitcoin and Ethereum. Or maybe it’s not University money, but from Crypto Capital accounts? Just kidding 🙂
Against the backdrop of account seizures in 2018 in various countries around the world and information passed by someone to the New York prosecutor’s office about an $850 million financial hole at BitFinex, a criminal fraud case is being filed in April 2019.
The combination of the criminal case + closed fiat gateways to USDT to USD withdrawals creates the perfect conditions for a panic overflow of BitFinex exchange customers from USDT to Bitcoin. The Bitcoin rally from $5,200 to $14,000 begins.
In the first part, we looked at the participants in the scheme (and their roles), who constantly experienced problems with fiat liquidity. The problem itself will predetermine the USDT manipulation scheme, which we will talk about in the second part.
Continued in the second part.
