Unmasking Financial Manipulation: The Case Against DigFinex and Tether
Introduction
DigFinex Inc., the parent company of cryptocurrency platforms Bitfinex and Tether, has been accused of engaging in a complex scheme to manipulate the cryptocurrency market. Central to these allegations is the creation of unbacked Tether (USDT) tokens, which are claimed to have been used to inflate the M1 money supply and artificially drive demand for Bitcoin and other cryptocurrencies. The ongoing legal battles provide a timeline of events that highlight this alleged fraud.
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#### Timeline of Events
**2014: Launch of Tether**
Tether was introduced as a stablecoin designed to maintain a 1:1 peg to the US dollar. It promised users stability in the volatile cryptocurrency market.
**2017: Unprecedented Growth in USDT Supply**
The circulating supply of Tether surged from $10 million in early 2017 to over $1 billion by year-end. Critics began questioning whether Tether was fully backed by US dollar reserves as claimed.
**2018: Research Highlights Manipulation**
A study from the University of Texas implicated Tether in Bitcoin’s 2017 bull run. The research suggested that unbacked Tether was used strategically to purchase Bitcoin during market downturns, artificially inflating its price.
**October 2018: Investigation by New York Attorney General (NYAG)**
The NYAG began investigating DigFinex for allegedly hiding the loss of $850 million in client and corporate funds. To cover this shortfall, Tether reportedly issued unbacked USDT to Bitfinex, which was then used to manipulate the cryptocurrency market.
**April 2019: NYAG Files Legal Complaint**
The NYAG accused Bitfinex of using Tether reserves to secretly cover losses. This led to increased scrutiny of Tether’s claims of full dollar backing.
**November 2019: Class Action Lawsuit Filed**
Investors filed a class action lawsuit in the Southern District of New York (*Leibowitz et al. v. iFinex Inc.*), alleging that Tether and Bitfinex manipulated the cryptocurrency market by issuing billions of unbacked USDT. This allegedly inflated the market cap and caused widespread financial damage.
**2021: Tether Settlement with CFTC**
The Commodity Futures Trading Commission (CFTC) fined Tether $41 million for making false claims about its reserves. Tether admitted that its tokens were not fully backed by US dollars for significant periods.
**2023-2024: Ongoing Legal Proceedings**
As lawsuits proceed, evidence suggests Tether and Bitfinex may have created systemic risks in the broader financial ecosystem by distorting the M1 money supply. Critics argue that the widespread use of USDT in trading pairs falsely inflates market liquidity, misleading investors and regulators alike.
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#### Mechanisms of Alleged Fraud
1. **Creation of Unbacked Tether**
Tether allegedly issued billions of USDT without corresponding reserves. These tokens were funneled into the market through Bitfinex.
2. **Price Manipulation**
During market dips, Tether was reportedly used to purchase Bitcoin and other assets, creating a false sense of demand and driving prices upward.
3. **Distortion of M1 Money Supply**
By injecting unbacked USDT into the financial system, DigFinex effectively expanded the M1 supply—a measure of liquid money—without actual economic growth, potentially destabilizing the market.
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#### Conclusion
The allegations against DigFinex and Tether raise significant concerns about transparency and stability in the cryptocurrency market. If proven, these actions could represent one of the largest cases of financial manipulation in modern history, highlighting the urgent need for regulatory oversight in digital finance.
Unmasking Financial Manipulation: The Case Against DigFinex and Tether was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.