Tether/Bitfinex linked to QuadrigaCX scandal in latest DOJ lawsuit – Tether may be fully backed

Today the New York DOJ indicted two people on suspicion of ‘shadowbanking’ for crypto companies – most notably Bitfinex/Tether. On investigation it turns out that one of the companies involved in shadowbanking, Crypto Capital, was also tied to QuadrigaCX. Though the Tether FUD is strong these days, for once I am not worried about it. Let me explain.


There’s two things we need to seperate here. First there are the allegations of involved parties doing illegal things, like illegally functioning as a money transmitter without a license. Secondly there is the issue and concern that Tether is unbacked 1-to-1 with FIAT dollars.

It’s important to seperate the two because the first issue being true does not mean that the second concern is valid also. Tether FUD is widely known because of fears of the tether-dollars not being sufficiently backed. However, it seems that from these lawsuits that the money may actually be there after all.

The story

The story so far is that Tether and Bitfinex used several shell companies to access banking services for FIAT deposits and transactions. From what I can tell this is true. The company Crypto Capital acts as an intermediary and provides exactly this type of service.

Where it gets fuzzy is with regards to the allegations that Tether is ‘only’ 74% backed by FIAT and that Tether/Bitfinex lost $850 million dollars worth of client funds. This is a very clouded story that’s perhaps not entirely true.

Now the FUD is being increased more because Crypto Capital is also the company that provided services to the controversial and now defunct Canadian exchange QuadrigaCX, whose owner died and took millions worth of client funds with him to the grave.

But if you dig a bit deeper and read through the lines, here’s what I think happened:

  • 1) The DOJ got wind of crypto capital’s dealings a while ago (early or before 2018) and has been thwarting their efforts ever since.
  • 2) This has led to bank accounts and deposits being frozen in several places. QuadrigaCX reported hundreds of millions of dollars being frozen by their Canadian banking partner. It’s unsure if this was Crypto Capital related.
  • 3) Bitfinex – at some point – has $850 million deposited at Crypto Capital which is then subsequently frozen by the authorities, likely at the behest of the DOJ
  • 4) Since Bitfinex is no longer in direct possession of the funds, the DOJ accuses them of losing the funds. Bitfinex cannot withdraw the funds to regain access, since Crypto Capital is illegally holding it and the account is frozen.
  • 5) Bitfinex borrows $900 million from sister-company Tether to cover the financial hole in the meantime. This is used as further proof of shady business by the DOJ.
  • 6) Because Bitfinex does not directly hold the clients funds that are on Crypto Capital’s account, they are now forced to withdraw statements of being 1-to-1 backed. Even though indirectly there apparently IS 1-to-1 backing of funds.

So all things considered it seems like the DOJ is really trying to do their best to screw the whole Bitfinex/Tether situation over. Although the illegal money transmitting claims are likely substantiated, I feel like much of the additional weight is tacked on in order to magnify the lawsuit as big as possible. Long story short: If you screw with Uncle Sam’s monetary system, expect to be made an example of.

The upside: Tether might be fully backed

The upside to this story seems to be that despite the lawsuits likely hurting, or even taking down, Bitfinex and Tether completely… it DOES mean that Tether was in fact 1 to 1 backed with assets. Perhaps not 1-to-1 backed by actual American dollars, but still to the worth of approximately the same amount.

That’s good news! That’s excellent news! If it turns out that Tether is fraudulent in following the law, but not fraudulent in fractional reserve banking, then all the concerns about Tether not being backed are unfounded!
If that is true, then the Bitcoin price may also be actually organic instead of artificially propped up by Tether.

It would alleviate a major fear in the market. If it turned out Bitcoin’s price was mostly artificial that could be catastrophic. But if it’s just Tether and Bitfinex that are in legal trouble, then there’s not at all that much to worry about. Bitcoin and crypto can survive fine without Tether and Bitfinex. Should they be taken down by the government and the money IS actually there, then it should all work out in the end.

There are fully regulated alternatives out there like TUSD, USDC and PAX. Or perhaps it is time to finally move to decentralized alternatives like MakerDAO’s DAI. In either case the crypto-space would be better off than the uncertainty of a dominant but unregulated Tether-dollar ran from some shell company in the Bahama’s.

I say, let the exodus from Tether begin, and may it flow into more deserving digital currencies. Tether FUD may be back, but I call Bullish on crypto.

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