Bitfinex

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Bitfinex
Bitfinex leaf logo.png
Founded 2012
Headquarters Hong Kong and Taiwan
Key People JL van der Velde, CEO; Giancarlo Devasini, CFO; Stuart Hoegner, General Counsel
Products Cryptocurrency trading services; crypto margin trading, crypto margin funding
Twitter @bitfinex
LinkedIn Profile
Website Bitfinex.com
Releases Company News
Blog Bitfinex Blog

Bitfinex is one of the world’s largest cryptocurrency exchanges.[1] According to CoinMarketCap, an online industry data aggregator, Bitfinex was the 37th largest cryptocurrency exchange by traded volume in late April 2019.[2] Unlike many of its competitors, Bitfinex offers fiat-to-crypto trading on its platform. Bitfinex also provides financing tools that let its customers earn interest by lending deposited funds to other customers and allowing them to trade cryptocurrencies with leverage.[3]

Background

Bitfinex has its roots in a failed cryptocurrency exchange, Bitcoinica, which was hobbled by two major thefts and scandals. Bitcoinica focused on attracting sophisticated traders and offering them the means to trade fiat against crypto with financial leverage. [4]

Bitfinex supports the trading of more than 60 digital currencies against fiat currency U.S. dollars, euros, British pounds and Japanese yen. Bitfinex also provides markets for some crypto-to-crypto pairs.[5]

Reliable detailed information about Bitfinex itself has not always been made readily available, and as late as November 2017 even information about the senior officers was not on its website.[6] Bitfinex, based in Hong Kong [7] but also claiming Taipei, Taiwan as headquarters,[8] was founded in 2012. According to the legal "Terms of Service," U.S. residents conduct business with BXFNA Inc. d/b/a /Bitfinex.[9] Bitfinex, as well as BXFNA Inc., is now a subsidiary of iFinex, a company registered in British Virgin Islands. [10] Tether, which issues fiat currency-backed digital currencies, is also owned by iFinex and has the same senior officers as Bitfinex. Until November 2017, the relationship between Tether and Bitfinex had been obscure.[11]

Citing difficulties in managing cash inflows and outflows from U.S. customers, Bitfinex announced on August 11, 2017 that it would cease conducting business with individual U.S. residents within the next three months. It also stated that, effective immediately, it would no longer permit U.S. customers to trade certain tokens on its platform in recognition of the guidance from the U.S. Securities and Exchange Commission about the possible status of tokens as investment vehicles under U.S. law. [12] Bitfinex was the first major cryptocurrency organization to take such action.[13]

Stating that Bitfinex is pivoting away from doing business in the U.S., Phil Potter, its long-term American head of strategy, announced his resignation on June 22, 2018, two days after Tether announced the positive results of a review of Tether's U.S. dollar holdings by a U.S. law firm.[14]

Bitfinex Hacks and Attacks

On May 22, 2015 Bitfinex warned its customers that it believed its "hot" wallet keys might have been compromised, but said that losses were small, and reimbursements would be absorbed by the company.[15] Outside sources estimated the breach to have resulted in a loss of about 10,500 bitcoins from customer accounts.[16]

On August 2, 2016 Bitfinex announced that bitcoin accounts had been breached and customers' bitcoin had been stolen.[17] Reports pegged the loss at nearly 120,000 bitcoin, then worth about $72 million.[18] A few days later Bitfinex announced that the losses would be "socialized" across all accounts, in part because the actual funds were held by Bitfinex in commingled accounts.[19] Consequently, Bitfinex reduced the value of each customer account, both cryptocurrency and fiat, by 36 percent and replaced the amount with newly minted tokens, which promised repayment of the loss through cash redemption or conversion into equity in Bitfinex. [20] Although by early April 2017 all losses had been repaid,[21] it was noted that if Bitfinex had taken the proper steps to correct deficiencies for which the CFTC had fined it two months earlier, the loss might have been largely prevented.[22]

On June 5, 2018 Bitfinex was the target of a Distributed Denial of Service attack and closed its trading operations for approximately one hour. It later reported that no customer funds were affected or lost. According to the Bitfinex head of marketing, Kasper Rasmussen,"The attack only impacted trading operations, and user accounts and their associated funds/account balances were not at risk at any point during the attack.”[23]

CFTC Fine

In June of 2016 the CFTC ordered Bitfinex to pay $75,000 in fines for a number of violations of US commodity regulations. Among other things, the CFTC noted that Bitfinex was not exempt from the Commodity Exchange Act because its contracts did not result in true ownership and control by the customers of the cryptocurrencies purchased on Bitfinex. Furthermore, Bitfinex solicited and accepted business from persons who were not eligible contract participants.[24]

Financing Tools

In addition to electronic trading in currency pairs, Bitfinex offers transaction margining, which allows traders to sell short on a forward basis as well as leverage their forward purchases by up to 3.3 times the amount of funds on deposit and available. The mechanics depend on voluntary peer-to-peer lending of funds by customers. The interest rates and terms are negotiated across the platform. Compliance is assured by Bitfinex, which steps in if position losses begin to exceed pre-specified limits.[25] Giving U.S. residents access to these tools without CFTC registration as a contract market provided part of the basis for the fines the CFTC levied against Bitfinex in 2016.

Suspicions about Bitfinex and Tether

The leaked Paradise Papers provided insight into many previously undocumented international business relationships. Among the papers were several that confirmed that Tether was managed by the same individuals that managed Bitfinex. According to published reports, individuals were suspicious that Tether was being used by the managers of Bitfinex to, among other things, prop up the value of Bitcoin. Concern was reported in late 2017 that Tether coins were being issued without the advertised one-U.S.-dollar-for-one-Tether coin backing.[26] Late in January 2018, Bloomberg reported that it had learned that both Tether and Bitfinex had received subpoenas from the CFTC on December 6 of the previous year, although the true subject of the subpoena was not known. [27] At about the time of the subpoena, participants in the industry were becoming suspicious about the fiat currency backing Tether for several reasons, especially as Wells Fargo had severed its banking relationship with Bitfinex, which had not replaced the bank and publicly admitted to having problems securing U.S. banking services for its customers.[28] At the end of January 2018 it became apparent that an audit conducted by an American accounting firm of Tether's cash holdings had been suspended. This was confirmed by a Tether spokesperson.[29] In May 2018 it was reported that U.S. dollar funds backing Tether were held by San Juan's Noble Bank International, an "International Financial Entity" registered there.[30]

On June 20, 2018 Tether reported that it had hired Freeh, Sporkin & Sullivan LLP, a U.S. law firm, to review the adequacy of its U.S. dollar reserves and the firm reported that there were sufficient holdings on June 1, 2018.[31] Tether has said it is still seeking an auditor to conduct a full audit.[32]

Insolvency Rumors

In 2018, Bitfinex representatives addressed rumors that the company struggles with insolvency issues. The rumors, which related to Bitfinex's relationship with Tether, its former relationship with Wells Fargo and Noble International, were circulated due to a number of individuals on the blogging site Medium, according to the Bitfinex post. "Bitfinex is not insolvent," the post read, "and a constant stream of Medium articles claiming otherwise is not going to change this."[33][34] This blog post was published a day after it was reported that Bitfinex had entered into yet another banking partnership, this time with HSBC.[35]

Key People

  • JL van der Velde - CEO
  • Giancarlo Devasini - CFO
  • Stuart Hoegner - General Counsel[36]

References

  1. Cryptocurrency Exchanges Pivot to Decentralization to Avoid Overseeing User Funds. ccn.com.
  2. Top 100 Cryptocurrency Exchanges by Trade Volume. CoinMarketCap.
  3. About. Bitfinex.
  4. Bitfinex Examined: Inside the Troubled Bitcoin Exchange's History. Coindesk.
  5. About. Bitfinex.
  6. Warning Signs About Another Giant Bitcoin Exchange. New York Times.
  7. CFTC Orders Bitcoin Exchange Bitfinex to Pay $75,000 for Offering Illegal Off-Exchange Financed Retail Commodity Transactions and Failing to Register as a Futures Commission Merchant. CFTC.
  8. Bitfinex. LinkedIn.
  9. Terms of Service. Bitfinex.
  10. Bitfinex Examined: Inside the Troubled Bitcoin Exchange's History. Coindesk.
  11. Warning Signs About Another Giant Bitcoin Exchange. New York Times.
  12. Announcements > Service Changes for U.S. Customers (Amended as of August 12, 2017). Bitfinex.
  13. Bitfinex to Bar US Customers from Exchange Trading. Coindesk.
  14. Bitfinex chief strategy officer departs. Reuters.
  15. The Official Blog: Urgent action required. Bitfinex.
  16. Bitfinex Warns Customers to Halt Deposits After Suspected Hack. Coindesk.
  17. The Official Blog: Security Breach. Bitfinex.
  18. Bitcoin worth $72 million stolen from Bitfinex exchange in Hong Kong. Reuters.
  19. The Official Blog: Update. Bitfinex.
  20. Every User of This Hacked Bitcoin Exchange Is About to Lose 36% From Their Account. Fortune.
  21. Bitcoin Exchange Bitfinex Completes Reimbursing Customers For 2016 Hack Losses. CCN.
  22. The Demon Barber Of Bitcoin. Forbes.
  23. Crypto Exchange Bitfinex Resumes Operations After Hacker Assault. Bloomberg.
  24. CFTC Orders Bitcoin Exchange Bitfinex to Pay $75,000 for Offering Illegal Off-Exchange Financed Retail Commodity Transactions and Failing to Register as a Futures Commission Merchant. CFTC.
  25. Features. Bitfinex.
  26. Warning Signs About Another Giant Bitcoin Exchange. New York Times.
  27. U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether. Bloomberg.
  28. There’s an $814 Million Mystery Near the Heart of the Biggest Bitcoin Exchange. Bloomberg.
  29. Tether Confirms Its Relationship With Auditor Has 'Dissolved'. Coindesk.
  30. One of the Biggest Crypto Exchanges Is Heading to the Caribbean. Bloomberg.
  31. FSS1JUN18 Account Snapshot Statement. Tether.
  32. Cryptocurrency firm Tether releases law firm report attesting to U.S. dollar reserves. Reuters.
  33. “Bitfinex is not insolvent:” Crypto exchange giant Bitfinex responds to recent rumors in new blog post. The Block.
  34. A Response To Recent Online Rumours. Bitfinex Official Blog.
  35. Major Crypto Exchange Bitfinex Obtains Banking Partner in HSBC, Will it Last?. CCN.
  36. The World's Leading Cryptocurrency Trading Platform. Bitfinex.