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Bitfinex

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Bitfinex, Inc.
Bitfinex logo.svg
Type of businessPrivate
Available inEnglish, Russian, Chinese
Founded2012; 7 years ago (2012)
HeadquartersHong Kong
Area served52 countries
ProductsCryptocurrencies

Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Ripple, OmiseGO, Monero, NEO, EOS

Fiat Currencies

USD, EUR, JPY, GBP
ServicesCryptocurrency exchange, Margin trading, Margin lending, OTC
Websitewww.bitfinex.com

Bitfinex is a cryptocurrency exchange owned and operated by iFinex Inc., which is headquartered in Hong Kong and registered in the British Virgin Islands.[1][2] Their customers' money has been stolen or lost in several incidents, and they have been unable to secure normal banking relationships.[3][4][5]

In 2015 the exchange's customers were hacked, losing about $400,000, and in 2016 about $73 million more was stolen from its customers' accounts. The exchange's access to U.S. dollar payments and withdrawals was then curtailed. In October 2018, Bitfinex again had serious difficulties with its banking relationships. Its management stated "Bitfinex is not insolvent on October 7."[6]

In April 2019 New York Attorney General Letitia James filed a suit accusing Bitfinex of using the reserves of Tether, an affiliated company to cover up a loss of $850 million to a Panamanian payment processor known as Crypto Capital Corp.[7] Reggie Fowler, who is alleged to have connections with Crypto Capital, was indicted on April 30, 2019, for running an unlicensed money transmitting business for cryptocurrency traders.[8]

Research suggests that price manipulation of bitcoin on Bitfinex accounted for about half of the price increase for bitcoin in late 2017.[9]

According to a statement by Bitfinex prior to the offering of $1 billion in tokens, Bitfinex had a net profit of $404 million in 2018. These results were not audited, nor prepared under Generally Accepted Accounting Principles.[10][11]

History

Bitfinex was founded in December 2012 as a peer-to-peer Bitcoin exchange, offering digital asset trading services to users around the world. Bitfinex initially started as a P2P margin lending platform for Bitcoin and later added support for more cryptocurrencies.

In May 2015, 1500 bitcoins were stolen during a hack.[12]

In June 2016, the U.S. Commodity Futures Trading Commission ordered Bitfinex to pay a $75,000 fine for offering illegal off-exchanged financed commodity transactions. The order also found that Bitfinex violated the Commodity Exchange Act by not registering as a Futures Commission Merchant.[13]

In August 2016, Bitfinex announced it had suffered a security breach. In it, $72 million in bitcoin was stolen from the company's customer's accounts.[14] Immediately thereafter, bitcoin's trading price plunged by 20%.[15] After learning of the breach, Bitfinex halted all bitcoin withdrawals and trading.[2] In that hack, the second-biggest breach of a Bitcoin exchange platform, 119,756 units of bitcoin,[15] which was about $72 million at the time, were stolen. The bitcoin was taken from users' segregated wallets and Bitfinex said it was tracking down the hack.[16] Exchange customers, even those whose accounts had not been broken into, had their account balance reduced by 36% and received BFX tokens in proportion to their losses.[17]

In April 2017, Bitfinex announced that it was experiencing delays in processing USD withdrawals after Wells Fargo cut off[18] its wire transfers. Shortly after the Wells Fargo cutoff, Bitfinex stated all international wires had been cut off by its Taiwanese bank. Since then, Bitfinex has moved between a series of banks in other countries, without disclosing to customers where the money is kept.[19][18][20]

Noble Bank International of San Juan, Puerto Rico reportedly handled some dollar banking for the exchange in 2017 or 2018.[21] The banking relationship was reportedly terminated in September 2018 as Nobel Bank encountered financial difficulties.[22]

In March 2018, British Virgin Islands-based Bitfinex confirmed the exchange’s plans to relocate its business to Zug, Switzerland.

In May 2018, Bitfinex emailed some of its users asking for some tax details, which the company indicated it would share with the government of the British Virgin Islands, which might in turn pass it on to the governments of the users' countries of residence.[citation needed]

Phil Potter, Chief Strategy Officer of Bitfinex left the exchange about June 22, 2018.[23]

In April 2019 New York Attorney General Letitia James filed a suit accusing Bitfinex of using the reserves of Tether, an affiliated company to cover up a loss of $850 million.[24] Bitfinex had been unable to obtain a normal banking relationship, according to the lawsuit, so it deposited over $1 billion with a Panamanian payment processor known as Crypto Capital Corp. No contract was ever signed with Crypto Capital.[7] James alleged that in 2018 Bitfinex knew or suspected that Crypto Capital had absconded with the money, but that their investors were never informed of the loss.[7]

Reggie Fowler, who is alleged to have connections with Crypto Capital, was indicted on April 30, 2019, for running an unlicensed money transmitting business for cryptocurrency traders. He is believed to have failed to return about $850 million to an unnamed client. Investigators also seized $14,000 in counterfeit currency from his office.[8]

According to an unaudited accounting report, Bitfinex in 2018 had gross profits of $418 million, expenses of $14 million, net profits of $404 million, and paid dividends of almost $262 million. The reported figures for 2017 were $333.5 million in gross profits, $6.8 million on expenses, $326 in net profit and $246 million in dividends.[11][10]

Tether

Tether is a cryptocurrency which Tether Limited had claimed to be pegged to the US dollar. Tether is closely associated with Bitfinex, with whom they share common shareholders and management.[23] Critics have raised questions about the relationship between Bitfinex and Tether.[19][25][18]

See also

References

  1. ^ "Company Overview of iFinex Inc. (BVI)". Bloomberg. Retrieved June 30, 2018.
  2. ^ a b Shekhtman, Lonnie (August 3, 2016). "Bitcoin security breaches raise questions about digital currency's future". Archived from the original on May 28, 2017 – via Christian Science Monitor.
  3. ^ Kaminska, Izabella (April 26, 2019). "We all become MF Global eventually, Tether edition". Financial Times. Retrieved May 20, 2019.
  4. ^ Lee, Timothy B. (April 29, 2019). "The leading "stablecoin" is no longer backed by $1 for every coin". Ars Technica. Retrieved May 20, 2019.
  5. ^ Vigna, Paul (May 17, 2019). "Lack of Banking Options a Big Problem for Crypto Businesses". Wall Street Journal. Retrieved May 20, 2019.
  6. ^ Kharif, Olga; Leising, Matthew (October 17, 2018). "Bitcoin Trades at $300 Premium on Controversial Crypto Exchange". Bloomberg. Retrieved October 18, 2018.
  7. ^ a b c Larson, Erik; Leising, Matthew; Kharif, Olga (April 26, 2019). "Crypto Market Roiled by New Allegations Against Tether, Bitfinex". Bloomberg. Retrieved May 5, 2019.
  8. ^ a b Robinson, Matt; Kharif, Olga; Leising, Matthew (May 3, 2019). "Ex-NFL Owner Said to Be Tied to $850 Million Crypto Mystery". Bloomberg. Retrieved May 5, 2019.
  9. ^ Popper, Nathaniel (June 13, 2018). "Bitcoin's Price Was Artificially Inflated Last Year, Researchers Say". New York Times. Retrieved June 13, 2018.
  10. ^ a b Kharif, Olga (May 9, 2019). "Beleaguered Bitfinex Says Its Crypto Exchange Turns 97% Profit". Bloomberg. Retrieved May 11, 2019.
  11. ^ a b "Initial Exchange Offering of LEO Tokens" (PDF). Bitfinex.com. May 8, 2019. Retrieved May 11, 2019.
  12. ^ Baraniuk, Chris (August 8, 2016). "Bitcoin users 'must pay' for lost coins". BBC News. Archived from the original on November 5, 2017. Retrieved November 23, 2017.
  13. ^ "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". Commodity Futures Trading Commission. June 2, 2016. Retrieved June 4, 2018.
  14. ^ "Bitfinex comes back from $69 million bitcoin heist". Archived from the original on May 22, 2017.
  15. ^ a b Tsang, Amie (August 3, 2016). "Bitcoin Plunges After Hacking of Exchange in Hong Kong". Archived from the original on May 18, 2017 – via NYTimes.com.
  16. ^ "Bitcoin Worth $72M Was Stolen in Bitfinex Exchange Hack in Hong Kong". Fortune. Archived from the original on November 20, 2016. Retrieved October 26, 2016.
  17. ^ Baldwin, Clare (August 6, 2016). "Bitfinex exchange customers to get 36 percent haircut, debt token". Reuters. Retrieved June 20, 2018.
  18. ^ a b c "Tether Theft Isn't the First Controversy for Cryptocurrency Firm". Bloomberg.com. November 21, 2017. Archived from the original on November 22, 2017. Retrieved November 23, 2017.
  19. ^ a b Popper, Nathaniel (November 21, 2017). "Warning Signs About Another Giant Bitcoin Exchange". The New York Times. Archived from the original on November 22, 2017. Retrieved November 23, 2017.
  20. ^ Nathaniel, Popper (November 21, 2017). "Warning Signs About Another Giant Bitcoin Exchange". New York Times. Retrieved June 4, 2018.
  21. ^ Katz, Lilly (May 31, 2018). "Bittrex Gets Bank Agreement to Help You Buy Bitcoin With Dollars". Bloomberg. Retrieved June 4, 2018.
  22. ^ Leising, Matthew; Rivera, Yalixa (October 1, 2018). "Puerto Rico's Noble Bank Seeks Sale Amid Crypto Slide". Bloomberg. Retrieved October 18, 2018.
  23. ^ a b Irrera, Anna (June 22, 2018). "Bitfinex chief strategy officer departs". Reuters. Retrieved June 23, 2018.
  24. ^ "In the Matter of the Inquiry by LETITIA JAMES. : Attorney General of the State of New York". Supreme Court of the State of New York County of New York. Retrieved May 22, 2019.
  25. ^ "Crypto-currency company reports $31m raid". BBC News. November 21, 2017. Archived from the original on November 22, 2017. Retrieved November 23, 2017.

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