Bitfinex supposedly repays $750M loan to Tether—why now?

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Bitfinex has claimed that it has repaid the $750 million loan it had taken from sister company Tether and which is currently the subject of an investigation by the New York Attorney General’s Office (NYAG).

According to the NYAG, the loan was taken to cover for the loss of $850 million in co-mingled client and corporate funds caused by entrusting its liquidity to a Panamanian company called Crypto Capital. The company has since faced legal action by multiple governments around the world, resulting in its funds being frozen and thus inaccessible to Bitfinex.

Of particular concern to the NYAG is the fact that the losses and the loan were not disclosed to investors, despite the loan presumably being pulled straight from Tether’s cash reserves, which are supposed to be either fully or mostly backing the Tether token depending on who within the organization you ask and when you ask them.

The announcement is suspiciously terse, reading:

Tether acknowledges that in January it was repaid the remaining balance of $550,000,000 of the outstanding revolving loan facility owed by Bitfinex. Bitfinex made this payment in fiat currency wired to Tether’s bank account. All interest due on the loan has been paid. The loan has now been repaid early and in full, and the line of credit has been cancelled.

No details are given about how Bitfinex managed to repay this loan early. As was the case when Tether was still insisting that the currency was backed 1:1 by the U.S. dollar, the company is offering no financial records in support of this claim.

Historically, Tether and Bitfinex will only admit as little about themselves as they can reasonably get away with. For instance, it wasn’t until the opening of the NYAG investigation that Tether admitted that the “stablecoin” was not in fact backed by the U.S. dollar, after years of distraction and insisting otherwise. The actual composition of Tether’s backing appears to have changed dramatically again, with a chunk of Tether’s market capitalization supposedly just converting from a loan to fiat cash in the blink of an eye.

The repayment of the loan itself is unlikely to be influential on the NYAG’s next steps in the investigation. The focus of the NYAG has been on the circumstances of the load and the failure of either Tether of Bitfinex to disclose it to investors and customers, together with the misleading claims made by Tether about the degree to which the currency is really backed by fiat.

Having said that, the sudden ability to be able to repay this loan warrants suspicion. There is no indication that Crypto Capital’s criminal investigation is nearing any kind of resolution, so the hundreds of millions of dollars that Bitfinex entrusted to them—without so much as a written contract—is presumably still unavailable. Remember, this is the company who enforced a 36% haircut on all its customers balances in order to stay afloat after a $70 million hack in 2016 and who were unable to handle customer withdrawals as they lost banking support across 2018 and 2019, ultimately forcing them to go to turn to Crypto Capital, so the sudden liquidity required to cover this loan demands some explanation. 

The circumstances become more suspicious when you consider that against this backdrop of financial turmoil, allegedly unprecedented fundraising to cover an almost billion dollar debt and a looming NYAG investigation, in the meantime the Tether printers have been working in overdrive. Between March and December of 2020, the amount of Tether in circulation rocketed from 4 billion to 20 billion, culminating in a January which saw 1.5 billion in Tether minted across a period of 48 hours. As regularly happens when Tether is printed, the price of BTC has also enjoyed huge rises, including the current run to all-time-highs in December and January when Tether printed reached its peak.

https://twitter.com/coloradotravis/status/1347912352000221188

As the NYAG’s investigation wears on, could this be a cynical last-ditch effort to wring the final drops of value from the Tether printing machine before the authorities finally clamp down on a “stablecoin” operation that has been operating on dubious grounds from the beginning? Is the news that the loan has been repaid a mere PR band-aid meant to tide spectators over until the NYAG makes a decision on the investigation? Certainly, the timing of this announcement—coinciding almost perfectly with the document handover deadline for the investigation—would suggest a degree of calculation on Bitfinex’s part, particularly when the original due date for the loan was said to be November 2021.

Officially, the outcome of the New York Attorney General’s office investigation has yet to be determined. Bitfinex and Tether were supposed to have handed over all documents relevant to the investigation on January 15, 2020. Lawyers on behalf of Bitfinex and Tether wrote to the Court confirming that the document handover had largely been completed and that the parties expect to be able to update the Court as to the status of the proceedings by February 18.

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