Two Bitfinex shareholders said they were unconcerned by the New York Attorney General’s allegations that the cryptocurrency exchange lost $850 million of client and corporate funds.
Zhao Dong, a Bitfinex shareholder who has tried to reassure the crypto community that the exchange is solvent and operational numerous times in the past, told CoinDesk Friday that he remains “supportive” of both Bitfinex and Tether, the stablecoin issuer with overlapping management and ownership.
Giancarlo Devasini, Bitfinex’s chief financial officer, personally assured Zhao that this is a temporary situation, Zhao said. Indeed, Devasini told him that the exchange “need[s] a few weeks and the funds will be unfrozen.”
“The funds were in several banks in Poland, [the] U.S. and Portugal, so I’m not sure but that’s what I heard,” Zhao said.
While the New York Attorney General’s office says the missing funds belong to both Bitfinex’s corporate accounts as well as its customers, Zhao said the funds belonged entirely to customers, saying:
“What the information I have right now is there are no losses, but the funds belong to clients. If the U.S. government seized the funds, they should know, the funds doesn’t belong to Bitfinex or Tether, it’s the clients’ money.”
‘I trust them’
Zhao spoke a day after the New York Attorney General revealed a court order asking the exchange to preserve and turn over all documentation about the matter, as well as documents outlining how Bitfinex borrowed funds from its sister firm Tether (both are operated by iFinex).
According to the NYAG’s investigative findings, Bitfinex could not access $850 million held by Panama-based Crypto Capital, and had borrowed $700 million from Tether’s reserves to cover up the shortfall. The news sparked a sell-off in the broader crypto market and a significant shift to alternative stablecoins over the next several hours, indicating trader concern about the two long-controversial companies.
However, when asked if he was concerned about allegations that Bitfinex hid the loss of $850 million, Zhao said he was not.
He cited events from his six years trading on the exchange as the reason for his confidence. “They did very well [after previous calamities] so I trust them,” Zhao said, referring to a hack in 2016 and the freezing of its funds by Wells Fargo in 2017.
Tether vs. banking
Zhao also argued that Tether’s model is safer than fractional reserve banking.
“Tell me, which bank is 100 percent reserved? Not even Tether is … fully reserved, [but] it’s much, much better than other banks,” he said. “Most banks only have 2-3 percent of reserves, for Tether even the $800 million [that] is lost, even that is [not all of their funds], they have 70 percent reserved.”
Pressed on the amount Tether has in reserves, Zhao added that he believes the company is 100 percent backed, “but even if they’re not, they’re much better than the banks.”
(It should be noted that banks in the U.S. have Federal Deposit Insurance Corporation insurance, covering customers’ funds up to $250,000 each in the event of a bank failure. More than 140 other countries have similar arrangements, according to the International Association of Deposit Insurers.)
‘They’re still here’
Nor is Zhao alone. Tian Jia, another shareholder, told CoinDesk Friday that he maintains his support for Bitfinex, and that he’s heard from all of its executives since the news broke late Thursday.
“They’re still there, they’re trying to solve problems,” he said. (CoinDesk has not received responses to multiple requests for comment from Bitfinex and Tether on the situation.)
That being said, Tian said he did not have any information that Bitfinex has not already made public, such as Bitfinex’s claim in a statement Thursday night that it plans to recover the funds. Unlike Zhao, Tian did not have a timeline for this recovery process.
“Because it is customers’ money, it’s not stolen cryptocurrency, it’s fiat. It can’t be stolen. It’s only frozen by the [regulators], and [Bitfinex is] trying to get it back by approaching Panama and the [U.S. Attorney General]. They have been communicating all along.”
Bitfinex image via Shutterstock