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EXCLUSIVE: Bitfinex used tether reserves to mask $850 million loss of client funds from 2018, NY AG says. AG gets court order to force Bitfinex to cease ‘cover up’
wsj.com/articles/bitfi #bitcoin #crypto #tether
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2/ First, the double-standard. Why didn't the NY AG throw the Martin Act at Merrill Lynch for doing something actually quite similar from 2009-12? Seriously, why the double standard??? Quoting the SEC's press release here: sec.gov/news/pressrele
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3/ "The maneuver freed up billions of dollars per week from 2009-12 that Merrill Lynch used to finance its own trading activities. Had Merrill Lynch failed in the midst of these trades, the firm’s customers would have been exposed to a massive shortfall in the reserve account."
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4/ WAIT -- PLEASE STOP AND READ THAT AGAIN 👆. It's really important. So...Merrill Lynch commingled customer funds, used them to cover its own obligations, & had it failed its customers would have been exposed to a "massive shortfall in the reserve account." Where was the NY AG??
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5/ But there's MORE! Merrill held $58bn/day (!!!) of customer securities in an account subject to its creditor lien. Per the SEC, "Had Merrill Lynch collapsed at any point, customers would have been exposed to significant risk & uncertainty of getting back their own securities."
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6/ Yeah, that Merrill stuff was pretty bad, and it paid a $415mm fine to the SEC in 2016. But the SEC handled it in a manner that didn't spark sudden panic & customer withdrawals from Merrill. But today, #NewYork went w/ the "gotcha" approach & pockets of panic seem to be ensuing
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8/ Second point--#crypto exchanges, clean up your act! You really need to voluntarily disclose #ProofofSolvency (h/t ), #ProofofReserves & audited financial statements (h/t ). If you don't, regulators, investors & litigation will force it on unfavorable terms!
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In the case of USDT it's the fiat at payment processors and banks that's in question. Someone could have looked at the CryptoCapital or bank balance and reconciled but a number in an account doesn't mean cash in the vault. Would need to audit the whole chain to for deliverability
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This is the essential problem using a blockchain to track real world items.
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If only someone would put fiat on a blockchain :)
💯 — but soon enough no one will even bother using fiat anymore — it’s diluted, clunky, expensive to move & not cryptographically verifiable! We’ve got a lot of wood to chop in #crypto before we get there though. But it’s where we’re heading!
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#Bitcoin is #inevitable. Bitcoin will be the one and only money globally accepted everywhere much sooner than most think.
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