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patio11/bitfinex-03152019.md

Created April 26, 2019 00:29
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bitfinex-03152019.md

Prediction as of 3/15/2019 JST:

  • Bitfinex is insolvent, for the Bitcoin economy's usual quixotic definition of insolvent.
  • This happened as a result of collateralizing Tether with BTC and other cryptocurrencies during the run-up.
  • Bitfinex / Tether treat whether Bitfinex held the collateral or Tether held the collateral as a material distinction, but that's ridiculous due to common control. The important fact: in 2018, ground truth diverged from "There is $1 in a bank account for every tether outstanding" to "There is $1 in a bank account and/or $1 worth of Bitcoin at prevailing prices available to Bitfinex for every tether outstanding."
  • This makes Tether synthetically long Bitcoin, via a receivable from Bitfinex. Bitfinex took the newly issued Tether and then, since this accounting shellgame appears to balance its books and leave it with surplus Bitcoin, either sold or lent the Bitcoin to short sellers during the run-up.
  • If Bitfinex simply sold the Bitcoin, they're doing relatively well for themselves, but they'll have to paper over their (extremely well-documented) lies to get Tether back into balance.
  • If they lent Bitcoin to short sellers, then they're going to get wrecked, because Tether's collateral no longer comes close to being able to redeem all circulating tethers (due to the collapse in the price of Bitcoin).
  • This is an open secret among the Bitcoin economy, and the interest in competing stablecoins was effectively coordinated action to cause a soft landing and let some pressure out of the balloon gradually, to avoid the entire ecosystem failing due to systemic risk.

And, for completeness' sake, the following was https://twitter.com/patio11/status/958494488061595649 :

Prediction as of 1/31/2018 JST:

  • Bitfinexed presently does have cash deposits approximately equal to their claimed Tether holdings.
  • Those holdings are principally not in name of Tether Limited but rather in FBO accounts held by attorneys.
  • Jurisdiction for the bank accounts is likely striped; I'm thinking material mounts in Taiwan, Japan, and EU.
  • One or more of those accounts will be de-facto frozen as a result of either a formal demand by the regulator or the bank upgrading an investigation into a preemptive freezing.
  • This results in a liquidity crisis when it is published, and a classic bank run.
  • Kraken is the first major exchange to fail.
  • Bitcoin price as measured by CBOE/CME explodes and hits circuit breaker, due to "got to exfiltrate any value before the exchange dies or goes into protracted receivership."
  • Maximum popcorn.
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