NY attorney lasers Bitcoin’s key funding mechanism

It was a volatile and stressful week in cryptoland.

First, Elon Musk, the electronics boss of the eccentric car company Tesla (or vice versa) and one of the most famous Bitcoin supporters, tweeted on Saturday that the price of the cryptocurrency appears to be “high”.

After Bitcoin hit a record high of $ 58,354 on Sunday, US Treasury Secretary and former Fed chair Janet Yellen dismissed Bitcoin as “an extremely inefficient way to conduct transactions” lamenting its staggering energy consumption, a comment published helped Bitcoin drop further than 22 percent from its peak. At pixel time, Bitcoin was trading at around $ 47,500.

And then, on Tuesday, the New York City Attorney’s Office moved to suspend Bitfinex and Tether’s “illegal activity” in the state.

Affiliates will now be banned from serving New Yorkers as they have deceived the market by overvaluing reserves and covering losses of around $ 850 million worldwide.

The move could mean a serious blow to Bitcoin’s value as Tether, a dollar-tracking crypto stablecoin, has a role in helping dollar-denominated inflows into the Bitcoin ecosystem.

On Tether’s transparency page, its current dollar fortune is estimated at $ 34 billion. But regulators and critics have always been concerned about the shape and liquidity of the dollar assets that Tether plans to hold in support of its pegged dollar token. Many believe that a large part of Bitcoin’s value was effectively synthesized by being overly dependent on assets of this type, which they claim are only partially funded.

In her findings, New York attorney Letitia James called Tether a “stable coin without stability”, not least because her Tethers were never completely secured at all times. In some cases, it noted, Tether’s equity statements came only from temporary cosmetic injections (commonly referred to in the financial sector as window dressing).

From the declaration of the working group (our focus):

The OAG’s investigation found that Tether had no global access to banking as of mid-2017. and so no reserves were held for certain periods of time to secure cables in circulation at a rate of one dollar for each cable, contrary to his representations. In 2017, amid persistent questions about whether the company actually had adequate funds, Tether released a self-proclaimed “review” of its cash reserves, which was deemed “in good faith on our behalf, to provide an interim analysis of our cash position. ” In reality, however, the money allegedly backing the tapes was not deposited into Tether’s account until the morning of the company’s “verification”.

On November 1, 2018, Tether released another self-proclaimed “review” of its cash reserve. This time at Deltec Bank & Trust Ltd. in the Bahamas. The announcement was based on a letter dated Nov. 1, 2018, which stated that the cables were fully backed by cash at one dollar per cable. The next day, November 2nd, 2018, Tether began transferring funds from his account and eventually moved hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. As of November 2, 2018 – one day after their last “review” – the Tethers were no longer one-to-one covered by US dollars in a Tether bank account.

The full report is well worth reading, not least because of the extent of the alleged misdirection by Tether regarding its partially funded assets. For example, Tether repeatedly denied bankruptcy rumors in press reports in 2017, despite simultaneously urging Panama’s Crypto Capital to return nearly $ 1 billion of its assets.

Bitfinex and Tether are now being ordered by the New York attorney to pay fines of $ 18.5 million.

However, it is unknown to what extent the messages reset the cryptosystem. In theory, the Tether and Bitfinex revelations suggest that the supposedly impossible to hack or manipulate cryptocurrency system, despite its intent to remove the core financial sector’s vulnerability to centralized control, money pressures, and capital shortages, is still a victim of the same forces Satoshi Nakamoto (the pseudonymous creator of Bitcoin) who was criticized in core funding.

Yet so much confidence in the “monetary system” is among its enthusiasts – especially among its HODLer class (those who buy and hold currency against the odds) – that it is possible that the system will defy Tether’s setback . After all, Bitcoin has previously proven resilient in the face of reputational issues like exchange hacks and capital losses. Many, like the MtGox debacle, would have bankrupted a more conventional financial system.

Collectivist Meme Power

In their current incarnation, the HODLer class represents a type of long-term patient capital that is remarkably rare in more traditional markets. If HODLers can regulate themselves in the style of an Opec cartel and defy the temptation to sell, the existence of such capital arguably gives Bitcoin an advantage over competing systems.

The bad news is that Opec’s adherence to targets and sales quotas was shaky at best. But then Opec never had a meme culture – mutually supportive that “laser eye” signifiers are the latest fad – to support its HODLer base during their toughest moments.

It also didn’t benefit from the de facto leadership of a mad Elon Musk guy who was more than happy to use unconventional signals like laser eyes to cryptically signal his intentions. Not only is the Meme King increasingly preparing to become the Saudi Arabia of Bitcoin by piling Tesla’s reserves into the crypto asset, but some even believe his ultimate plan could be to take Bitcoin miners into space send where they can earn endless crypto fortune thanks to their power on cheap and limitless solar energy.

The analogies are already in preparation.

Saudi Arabia was the lowest cost producer and the most abundant member of the oil reserves and was considered the ultimate swing producer. Regardless of who officially ran the cartel, the kingdom had the power to single-handedly influence the balance of the boundary conditions. In the prime of Opec’s power, the oil market would forcibly deconstruct any utterance by the Saudi Arabian Minister of Petroleum and Natural Resources that indicated the country’s intentions to develop oil.

Elon may not have fields of cheap energy yet, but his Twitter utterances seem like enough to sway the HODLers, or at least bolster their morale. Deciphering the true meaning of your tweets has become an art as nifty as reading runes or encrypted war news.

Related links:
Bitcoin Opec prefers to increase the block size by 8 MB – FT Alphaville
OpecCoin – FT Alphaville
Let Them Eat Bitcoin Mining Equipment – FT Alphaville

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