The Bitfinex Case: What Damage Can It Do?
We are in the middle of one of the biggest cryptocurrency-related scandals. American authorities filed a court order on Bitfinex for allegedly covering $850 million loss using Tether funds. While everybody picks a side and condemns either the exchange or the New York AG’s office, I’d like to talk about possible consequences.
A week ago, we wrote a story about possible misconduct in funds. According to the allegations, iFinex, a company managing Bitfinex and Tether (USDT), covered $850 million loss on the exchange. The company used Tether funds to do this, and did not inform its consumers about it.
Quite a big fly in the ointment
The great Honore de Balzac once said: “Laws are a spider web through which the big flies pass and the little ones get caught.” It has been a very truthful sentence in the cryptocurrency industry. At least till now.
Earlier, the only case of such magnitude was Mt. Gox. There are even some parallels in those two stories. In the early days of crypto, when we had still little to no knowledge about what cryptocurrencies are, and what they can do, Mt. Gox was one of the biggest Bitcoin exchanges. The platform got in trouble due to poor banking relationships.
Similar problems have occurred with Bitfinex. The exchange also has issues with banking relationships (some may even say, that Bitfinex suffers because of lack of banking in their organization). What did happen with Mt. Gox? The Bitcoin exchange stopped all trading and went bankrupt. Today, we don’t know if Bitfinex will share the path of its older predecessor. However, we do know, that it will hurt the industry.
‘Trust’ is a keyword
Of course, breaking news about Bitfinex-Tether instantly caused turmoil in the cryptocurrency market. We even analized the BTC/USD chart, trying to find out what could happen next.
Nevertheless, that is not the worst part of it. Losing trust is. The cryptocurrency industry is still relatively young. Bitcoin has been in existence for 10 years now, but cryptocurrencies became widespread two years ago. What is most important at the beginning? Trust. Confidence that you put your money in something trustworthy, something that won’t become a scam. If the industry wants to attract new people, there has to be some kind of assurance and reliance that the industry is legit.
“I’m not upset that you lied to me, I’m upset that from now on I can’t believe you”
Despite the court’s verdict, the industry got punched in the gut. Once again, skeptics got an argument that cryptocurrencies are fraudulent industry. When countries across the whole world ponder possible regulation of cryptocurrencies, that kind of event will only drag them to the conclusion that going into legislation isn’t worth it.
Once again, the industry, we have been writing about for years now, takes a hit. Not only with investors, and lost money, but most of all on the image. Once again, critics get a new fuel to criticize the thing which may be the future of payments. And that is a real shame.
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