NY Attorney General Probes Alleged Bitcoin Fraudsters

Anyone who has been reading me on here will be well aware of my reservations, primarily due to the surrounding volatility, of Bitcoin investment. However, and in spite of that, I find observing ‘from afar’ just too entertaining. This last month has been no different so enjoy my observations that follow!

Positive signs:

  • Bitcoin has never been bearish once within 12 months of its halving event (we are ~1 week away from that)
  • Bitcoin is trading above the 200-day moving average
  • The 50-day moving average has crossed the 200-day (a “golden cross”)
  • Despite recent ‘bad news’ released from the New York Attorney General (accusing Bitfinex of ‘losing’ $850million – a gross exaggeration) the Bitcoin price is holding up well for now
  • e*Trade and TD Ameritrade are adding Bitcoin trading to their platforms, increasing the addressable market
  • Many of the most experienced traders/analysts are confident the bottom is in

Is the bear market over?

At the time of writing, Bitcoin has ended April at ~$5240, an approximately +29% increase for April. Year-to-date performance is therefore circa +43.5%.


  • A bank-run on Bitfinex could, in theory, force it to close down, likely hurting prices for several months (like when the same exchange was hacked in 2016).
  • Bitcoin must break through what was price support for much of 2018 (i.e. trade above $6200) to confirm the reversal
  • I feel confident the bear market is finally ending.
  • However, it is entirely possible that a break above $6000 fails on the first attempt, triggering a sell-off back down into the 4000’s.

Bitfinex & Tether – what’s happening this time?

On 25th April, the New York Attorney General announced that it had acquired an injunction against Bitfinex and Tether to stop them using a ‘credit line’ (lent from Tether to Bitfinex) as they felt it was illegal and that the companies had defrauded ‘investors’.

This suit revealed that Bitfinex had ‘lost’ (AG’s words) $850 million of client and corporate funds that were held by a counterparty called CryptoCapital who they were using for banking services.

The truth of the matter is that CryptoCapital had many of its accounts frozen in multiple jurisdictions the main ones being Poland, Portugal and the USA. So Bitfinex is legally entitled to its customers’ funds, but will have to go through a lengthy process to reclaim them.

It appears that the New York AG’s motivation was to publicly warn the market that Bitfinex was having cash flow issues and to prevent Tether from being used. Tether had been growing very rapidly in recent weeks and recently reached a new all-time high in terms of AUM. I believe the US authorities are working hard to help their own domestic USD stablecoin companies achieve dominance in order to retain control over the dollar. Thus, Tether’s dominance is unacceptable.

Bitfinex and Tether have responded strongly, accusing the NY AG of misrepresenting the facts deliberately and looking for headlines rather than actually protecting customers. They recently filed to have the NY AG’s injunction lifted and the court gave the NY AG a few days to show ‘cause’ for requiring any injunction at all (i.e. show that it will prevent further harm from coming to customers in the NY jurisdiction).

As things stand today, Tether USD is backed 74% by cash or equivalents and 26% by a loan to Bitfinex (supposedly done on ‘arm’s length’ terms). Despite this, it is trading around 99 cents on the dollar. The market appears far calmer about this than the New York authorities, which may give Bitfinex the time to recoup frozen funds and lay to rest current fears. Bitfinex themselves seem confident about the recovery efforts, hoping for a partial recovery ‘within weeks’.

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Reading the latest news it seems that this ‘scare’ from the NYAG has moved on a bit now!