On November 17th, there was the last Tether uncovered issuance of cryptocurrency worth $30 million and already on November, 19th, after a hack, the money was stolen by hacker. On November, 8th, after Tether’s issue of cryptocurrency worth $20 million, there was BTC buyout worth $13.5 on Bitfinex, which pushed bitcoin price by almost $300. Tether hack, what’s that? A hacker attack or a deliberate attempt of the project developers and Bitfinex to hide that the coins were uncovered? Whether Bitfinex will become a new Mt Gox and what can happen to the cryptocurrency market, read in the article.
Tether theft can become the start of cryptocurrency crash
During the night of 21 to 22 November, there was information in media, that on November 19, hackers hacked Tether platform (USDT) and stole $30 million in tokens. The news was hardly noticed: the site developers immediately published the site, where the stolen tokens were moved and warned, that they couldn’t be traded. Also, the Tether would compensate the stolen funds from the reserve. When the news about the theft was released, bitcoin lost about $500, but then quickly restored.
At first, the news seems rather trivial: it’s not the first time when the hackers have hacked wallets, exchanges or platforms. And the amount of $30, when compared to the total cryptocurrency capitalization of $282 billion, seems insignificant. But with a more thorough analysis, the ideas emerge, that make us doubt, whether the cryptocurrencies are so safe and the investors won’t be disappointed soon?
Will Bitfinex be a next Mt Gox?
Tether cryptocurrency appeared in 2015. The project suggested a blockchain-based coin, which would replace U.S. dollar in exchange transactions. The cryptocurrency rate should have been fixed at 1:1 to U.S. dollar and supported by a bank trust in Taiwan. In spring 2017, American Bank Wells Fargo limited bank transfers, because of that Bitfinex (there was most Tether turnover) had problems, the cryptocurrency was 10% down at $0.9.
Several questions arise from the cryptocurrency chart:
- How can the cryptocurrency developers hold Tether price at the same level? The price reflects the supply and the demand ratio for the asset. If investors are not interested in a cryptocurrency, its price goes down. In this case, Tether price to U.S. dollar doesn’t drop. But its rate lowers to BTC (logical, since bitcoin is growing);
- Why has the cryptocurrency capitalization increased almost tenfold during the past year if its price hasn’t changed? Capitalization is the total cost of all tokens. The capitalization growth with the stable price suggests the increase in the amount of tokens.
- Who is actually in charge of Tether issue?
Tether rates behaviour can’t be economically based, but much becomes clear from the following facts:
- Tether capitalization has increased from $70 million to $650 million during the year, thus entering TOP-25. 20% of all tokens have been issued just for November, 2017;
- on November 8th, tokens worth 20 million USDT were issued, on November 9th – 20 million more, on November 10th – 30 million. On November 8th, on Bitfinex, there was the order for bitcoin buyout worth $13.5 million, which caused its surge from $7075 to $70350;
- Phil Potter is in leadership both of Bitfinex and of Tether.
In other words, there is every reason to believe, that, having taken the advantage of their office, Tether developers made an unchecked issue of their cryptocurrency and invested it in real coins of TOP-5. It is obviously not accidental, that the amount of $30 million worth tokens stolen on November 19th is the same as the amount of $30 million worth tokens issued on November 17th.
The same was with Mt Gox exchange, which comprised about 80% of total bitcoin turnover in 2010-1013. Ahead the bankruptcy, bitcoin value was being increased artificially by non-existent money, and at some point the exchange failed to meet its commitments to the traders and had to announce a hack. But was it a real hack or an attempt to hide the fact, that the money hadn’t actually existed?
It is believed, that if investors wish to withdraw all the money from cryptocurrency exchanges, there won’t be the whole amount of it. It’s not uncommon, when small exchanges take profits from price changes on large ones, where the commision fees are less, so they don’t stock liquidity, sufficient to fulfill their commitments. In case of loss, they have to resort to “hacks”, putting the blame for the loss on hackers. We are sure to know soon, whether Bitfinex tries to plug the holes in its balance by uncovered issue or just increases other cryptocurrencies values artificially. But the situation leads to a few disappointing conclusions:
- Except for wallets’ hacks, ICO projects, most of which won’t be implemented after collecting the money , investors face the risks of exchanges’ scams.
- As there is no official regulation, cryptocurrency exchanges are free to scam. Unchecked issuance of uncovered coins and investments in BTC or ETH cause an enormous bubble.
- Exchanges’ investment in the cryptocurrencies of TOP-5, push the prices higher. Nobody knows when these funds will be withdrawn, having crashed the whole cryptocurrency market.
The only way to protect yourself from a wallet hack or an exchange scam is to invest small amounts for a short period, through a reliable, regulated broker. Learn more on LiteFinance.
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