An Introduction to the Tether/Bitfinex Controversy

Bitfinex is one of the historically largest Bitcoin exchanges and Tether is by far the largest stablecoin. Each potentially has significant influence over the industry on their own, and their interconnectedness makes this more of a concern. However, since both were founded years ago and many of the events have happened and been in revealed in bits and spurts it can be difficult to understand their place in the cryptocurrency environment. This will hopefully serve as a basic introductory document that will then prompt further research.

Continue reading “An Introduction to the Tether/Bitfinex Controversy”

A Timeline of Deeply Conflicted Tether Transactions

On November 1st 2018 Tether proudly proclaimed that they were once again banked, this time with Deltec Bank in the Bahamas (archive). This announcement included a letter (my copy) (archive) signed by someone associated with Deltec that stated that Tether had a ‘portfolio cash value’ of $1,831,322,828 on October 31st. This suggested to all that Tether had the value to back their tethers.

Continue reading “A Timeline of Deeply Conflicted Tether Transactions”

Raphael Nicolle and the Founding of Bitfinex

Raphael Nicolle is the founder of Bitfinex. Before that he had an interesting path.

By day a helpdesk technician, during his free time Raphael became active under the account ‘unclescrooge‘ on BitcoinTalk. From this account he makes some interesting posts, including occasional climate change denialism, saying he would invest in illegal businesses, and at least one joke about underage prostitution to make bitcoin. First he got into pyramid schemes, schemes that were not legally registered, and then he got really into pyramid schemes, and then he started defending a pyramid scheme scammer (repeatedly), and then he lost all the bitcoins he gave that scammer.

Shortly after this, Raphael decides he will start his own OTC desk and his own lending program. People will lend him Bitcoin and he will guarantee them a 2% return per week. To make this money he said he would be performing arbitrage, which he described as ‘buy low and sell high’. (Astute readers will note that this at best an extraordinarily simplified definition of what arbitrage is.) This program appears to not have taken off, perhaps due to questions from other forum members about his advocacy for pyramid schemes in the past. The text of the post was later deleted.

After this Bitfinex launched! (Though Raphy could be found still trying to do what look like OTC trades.) Bitfinex was a brand new ‘Meta-Exchange’ that would allow people to trade at either Mt. Gox or at Bitstamp through the BitFinex interface. They also had their own exchange that was based on stolen Bitcoinica code. Bitcoinica was an exchange that was rife with security issues that had recently shut down. The unique feature for Bitfinex that made it attractive (besides the ability to aggregate liquidity across multiple exchanges) was the fact that they had margin and lending integrated into the platform. However, the fact that it was built on stolen code with a multitude of issues in the early months. However, eventually they started to even out. However, there were still some interesting posts including at one point Raphael even made sure to point out that his exchange was a bucket shop. (This was a fact that Vitalik Buterin had warned about in Bitcoin Magazine.)

Raphael gradually took a less and less public role in Bitfinex until (according to his LinkedIn) left his role as CTO the same month that the Bitfinex hot wallet was hacked. He is now interested in anti-aging and looking for an executive producer (he should get in touch with the chairman of Deltec).

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My Appearance on The Blockchain Debate podcast with Larry Cermak and Patrick McKenzie

You can find it here.

I had a ton of fun recording this podcast, however, due to time constraints I was not able to get to all my notes on whether or not Tether acts in good faith. I would like to summarize a few of the things I was not able to get to here:

  1. Bitfinex has used the bank accounts of friends and family of Bitfinex in order to service withdrawals.
  2. The firm who provided Tether’s last attestation is no longer operational, and Freeh, one of the lawyer behind it UPDATE: is no longer a lawyer is no longer practicing law, but may still be licensed.
  3. Tether advertised no KYC swaps between Bitcoin and Tether.
  4. Tether held tens of millions of dollars in the bank account of their General Counsel.
  5. The founder of Bitfinex was promoting ponzis right up until he announced Bitfinex.
  6. The founder of Bitfinex once described his own exchange as a bucket shop.

There are many more, but I just wanted to give you a taste of some of the stuff we ran out of time to get to.

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Predictions and Outcomes

At one point I tried to learn about a token called Kimchi. That token no longer has any volume or value to speak of.

I decided to summarize some facts about the failed crypto entrepreneur Jacob Kostecki. Today, the class action lawsuit against him has entered default judgement.

I wrote about a deeply exploitive scam called The Billion Coins. Unfortunately, that coin is still active and is still taking advantage of people. They have tried to rebrand to make themselves look more official, but are still the same group of scum.

I once wrote about a worthless token called slidebits. Now the creator himself removed the blockchain from his app.

I wrote an article presenting a bearish case for a token when I was applying to a crypto hedge fund. That token has a market cap 1/10 of it’s all time high. Though I must admit, it has not seemed to be affected by any of the issues I pointed out. Sometimes things just break your way.

I wrote an article taking an in-depth look at the Basis Protocol. In that article I suggested both that part of the system could be a security. Basis shut down to avoid securities scrutiny.

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A List of Funds/Companies who Fundraised Through Havelock Investments

NOTE: THIS MAY BE UPDATED OR CHANGED AS I DEVELOP A BETTER PICTURE OF OWNERSHIP OF THESE COMPANIES, UPDATES WILL BE LABELED AS SUCH.

Havelock Investments was an early platform in the cryptocurrency space that allowed for a variety of companies to fundraise.

Havelock Investments was purchased by the Panama Fund, S.A. in 2013. The CEO was Daniel Tsai. (archive)

ASICMINER – Asicminer was described as a leader in the bitcoin mining space. Creating mining equipment and running their own mining farm. You can find details about it here. (Archive)

HAVELOCK INVESTMENTS MINING FUND – Havelock Investments Mining Fund was Havelock’s fund investing in Bitcoin mining.

KORB AND CO. INVESTMENTS MINING FUND – This is another fund that was meant for purchasing Bitcoin mining rigs. You can find the most recent copy of their website here.

SATOSHI DICE – Satoshi Dice was a game started by Eric Voorhees (archive). Satoshi Dice was a gambling service where you could send a Bitcoin transaction to a specified address and could potentially receive significantly more in response. Eric Voorhees was charged with offering unregistered securities for these sales of ownership in SatoshiDICE and FeedZeBirds. (archive)

VIRTEX – CAVirtEx was an early Canadian Bitcoin Exchange. Stuart Hoegner (archive), the General Counsel for Bitfinex and Tether, was the lead attorney when Coinsetter acquired CAVirtEx.

CRYPTO CAPITAL CORPCrypto Capital Corp is a payment processor, infamously used by Bitfinex, and with the principals under US indictment. Crypto Capital claimed that a significant portion of their assets are being held in Poland, Bitfinex’s lawyers claim to not believe this.

LABCOINLabcoin was a company that claimed to be working on Bitcoin ASIC mining technology.

SANDSTORM – Sandstorm was an ‘investment fund’ which claimed to use the Bitcoins invested in it to make more money. It appears to have likely been an unsustainable high yield investment. You can find public copies of their ‘financials’ here. (archive)

THE MINISTRY OF GAMES – This was a company that ostensibly was focused on game development and publishing.

XBOND – XBond was issued by ThickAsThieves and was intended to be a perpetual fixed yield bond paid by the Bitcoin holdings of ThickAsThieves. (archive)

CASINOBITCO.IN – CasinoBitco.in [public files can be found here (
1. Prospectus (archive)

2. PR Release (archive)

3. Bitcoin Gaming Market Analysis (archive)

4. 2nd Press Release (archive))] was a Bitcoin casino that later rebranded to Monster Byte.

[1. Q3 2017 Financials (archive)

2. Q4 2017 Financials (archive)

3. Q1 2018 Financials (archive)

4. Q2 2018 Financials (archive)

5. Q3 2018 Financials (archive)] They now do white label cryptocurrency casinos. They are linked to Nessie (formerly at nessie.io (archive), now redirecting to crypto.eu) and MoneyPot (archive from when MonsterByte owned it) (domain now sold). I think it is valuable to remember that Stuart Hoegner (archive), the General Counsel for Bitfinex and Tether, is a “lead attorney to major bitcoin and altcoin poker brands”. It is unknown whether or not BitcoinRush/CasinoBitco.in/Monster Byte is among them.

COGNITIVE MINING – The listing on Havelock is not available. It appears to have been a way to invest in Bitcoin mining based on their archived site.

DEALCO.IN – The listing on Havelock is not available. The page (archive) currently directs to what seems to be LocalBitcoins but includes a feature where you talk to the person first.

NEO & BEE – The listing on Havelock is not available. You can see it on the right panel on various archives of Havelock. It appears to have ended due to misappropriation of funds. (archive)

MINTSPARE – The listing on Havelock is not available. Mintspare (archive) seems to be a way for people to trade in electronics for Bitcoin.

PetaMine CryptX – The listing on Havelock is not available. This appears to be another mining fund. They eventually shut down. (archive)

RENTAL STARTER – This was an investment into a real estate fund that was investing in Ohio but was operated by Full Power Asia Investment LTD.

SEEDCOIN FUND – This listing on Havelock is not available. Seedcoin (archive) was a crypto incubator out of Hong Kong. GoCoin the Brock Pierce cofounded company was incubated here.

BIG TREND CAPITAL INVESTMENT – The listing on Havelock is not available. It is unclear what they did.

ALCHEMINER – Alcheminer was a company that created ASIC mining hardware.

SEVENTH CONTINENT – Seventh Continent was trying to create a bitcoin denominated marketplace. Their website is still live here. (archive) They were in part funded by the Lifeboat Foundation’s Bitcoin Endowment. Stuart Hoegner (archive), the General Counsel for Tether and Bitfinex was a member of the Lifeboat Foundation. (Archive of a cache of his bio on the page)

A-ADS.COM – This company was a bitcoin online advertising network that claimed to not gather private information. They seem to still be open. (archive)

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Analysis of the New York Supreme Court Remittitur in the Tether and Bitfinex New York Attorney General Cases

UPDATE: This was refiled presumably as part of the formal movement from the Supreme Court back to trial and the actual decision came down in July. Thank you to Rob Stevens for reminding me of this fact.

Document

There was finally a new development in the long delayed Digfinex/iFinex/Bitfinex/Tether NYAG case. The New York State Supreme Court heard the appeal from Bitfinex and unanimously decided to send them back to trial, dismissed their motion to dismiss, and reaffirmed that they need to supply the ordered documents.

I will review the document below.

The judges lay out initially that this appeal was absolutely meaningless from the start, and nonetheless take the time to lay out why each of Bitfinex’s arguments are invalid.

They begin (as shall I) with Tether’s argument that it is neither a security or a commodity and as such these activities surrounding Tether are not covered under the Martin Act. The judge strongly disagrees.

The first point laid out here is explaining that Bitfinex did not appeal correctly to challenge the NYAG jurisdiction, and instead in effect were trying to appeal the right of the Supreme Court to hear an application for this type of order.

The second point follows along with this one to emphasize that they did not appeal the order they appear to have a problem with.

The third point, is laying out even if they had handled this appeal correctly Tether would still be found to be covered under the Martin Act.

After settling the issue of whether Tether was neither a commodity a security they addressed the argument by Bitfinex that the New York Supreme Court lacked personal jurisdiction. In this argument Bitfinex tried to claim that there was insufficient link between their activity in New York and the alleged fraud. The judge did not find this argument convincing at all.

The first point that the judge emphasizes is that a single transaction is sufficient for their to be jurisdiction. They further affirm that since the investigation now centers around a fraud perpetrated by deceit about backing that it would affect the New York traders/Tether holders.

The judge then conveniently reviews for us some of the many ways that Bitfinex/Tether are tied to New York. Namely: they had traders in New York, they had traders in New York even after allegedly banning traders from New York, they had an executive working in New York (Phil Potter), the New York based executive they had specifically collaborated with other businesses who were based in New York, and finally that they hired multiple other firms in New York.

Even after thoroughly pointing out that Tether was deeply linked to New York, the judge elected to continue and point out that generally as long as there is sufficient evidence of some connection they will allow for an order like discovery to go forward in order to determine the extent to which a connection exists.

The final argument that Bitfinex has trotted out several times is that they were not served properly. The judge clearly points out that this is a ridiculous claim, and that Bitfinex’s counsel who had been working with the New York Attorney General during the investigation was served by hand, email, and overnight delivery.

In conclusion, this case has been moved from the appellate court back to trial, Bitfinex and Tether must hand over the documents requested, and they are now in an extraordinarily difficult position.

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Why I Unpublished My Book

For those who do not know, I use to run a nutrition and health website called Scientific Nutrition. While running this site, I came across intermittent fasting and in reviewing the literature, I thought it was a potentially useful behavioral trick for weight loss. However, I also found a variety of people making entirely nonsensical claims about intermittent fasting. They believed it cured cancer, diabetes, and overall was the solution to greater health. I wrote a book called The Optimized Guide to Intermittent Fasting that was meant to look at a healthy framework for using intermittent fasting for weight loss, combined with scientifically rooted myth busting surrounding claims others had made. I recently chose to unpublish this book and I would like to publicly discuss the reasons.

I always had a fear surrounding intermittent fasting that it looked a lot like disordered eating, but convinced myself that this is true for many diets, and allowed myself to go forward writing about it. However, as I have spent more time reviewing recent literature, and reflecting on my own eating patterns I felt compelled to remove it.

First, let’s address some of the recent literature that has been published and how that factored into my thought process. A recent five year prospective study on Bulimia Nervosa identified intermittent fasting as a strong risk factor for the development of bulimia. (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2850570/) Furthermore, it suggested that intermittent fasting is a much better predictor of development than assignment to a weight loss diet. There is also generally a pattern in the pscyhology research that suggests that using any unhealthy or excessively strained eating pattern can correlate with later development of bulimia and binge eating disorder. This is consistent with my own experience.

I have for much of my life struggled with a nearly compulsive need to eat, and have often felt out of control while I am eating. Starting about a year and a half ago I shared this fact with my primary care provider, and have started receiving treatment for it. However, in the past it has been a problem that has repeatedly dogged me. It was always a source of great shame, and as such I was an expert in hiding my eating. If you occasionally grab some things out of the pantry, and eat less at the meals, then people might not notice. If you grab a Wendy’s Dave’s Double combo and eat it before you get home then no one has to know. If you eat this candy bar from the grocery store before you get back then no one will see it. These narratives had always been present in my head, and had influenced my relationship with my body, my weight, and my confidence.

There were periods where these feelings of shame surrounding my eating were nearly overwhelming. I remember several times in college where I would be kneeling over the toilet bowl, hoping I would be able to purge, because if I did then maybe I would not feel so wrong. I never did, and I am grateful for that fact, but in considering my own behaviors and the things I have written I have come to the conclusion that I can no longer endorse my own work.

The fundamental problem with intermittent fasting is that it represents the same thought pattern as certain types of disordered eating. Namely, that you can eat and consume and do all of that to your limit, so long as you follow this other procedure. It seems to serve much of the same purpose for many people as purging does.

Eating disorders are some of the mostly deadly mental illnesses, and lead to badly damaged health across a variety of measures, not to mention the difficulty inherent in living with them. As such, I have unpublished my book, will be removing any older podcast episodes discussing intermittent fasting, and adding a disclaimer to any older articles that will link back to this article. This may take me some time, so please be patient, but it is happening.

I am writing this article, because I have strongly publicly advocated for some of these techniques, and as such now that I no longer believe them I feel that you deserve to know that. I do still believe that intermittent fasting can be effective for some people, but I worry that the people advocating it for broadly or as a panacea may be unintentionally contributing to health problems, and I regret strongly that I did the same.

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A List of Companies Who Worked With Crypto Capital

Crypto Capital is the money processor famous in both the QuadrigaCX case and the Bitfinex and Tether cases. Bitfinex famously handed them approximately $1 billion without even a contract. This is a list of companies who have worked with them for my own reference as I do research:

AirBEx – No longer open

MIMEX – No longer open

1BTCXE – No longer open (appears to have been owned by Crypto Capital)

Coinapult – No longer open

1EX.Trade – ‘There has been no trading activity in the last 24 hours’

MonetaGo – Appears to be still be open

BitMEX – https://www.forbes.com/sites/tatianakoffman/2020/10/01/bitmex-exchange-charged-with-failing-to-prevent-money-laundering/

Chip Chap – No longer open

Charna Crypto Exchange – No longer open

X-Coins – No longer open

WLOX (White Label Open source eXchange) – Last commit 7 years ago https://github.com/9cat/wlox

Kraken – Second largest United States exchange by volume (as this is being written)

Bitfinex – Well…

Decentralized Capital – Was a stablecoin, now closed

Bitt – Still open

Foxbit – No longer open

The Rock Trading – Still open

BTCC – No longer open

CEX.IO – Still open

QuadrigaCX – https://www.financemagnates.com/cryptocurrency/news/quadrigacx-trustee-recovers-30m-creditors-seeking-171m/

Exmo – Still open

The Time Brock Pierce DMed Me

Image of Brock Pierce DMing me with the following messages: "If you seriously want to short tether i can find the long", "Would have to be substantial to justify all costs to be compliant"

One of the best things about Twitter is all the different people that you get to meet and communicate with. For example, the founder of Tether (infamously sued for child sexual abuse and arrested in a house full of child pornography) would semi-regularly talk to several of us Tether skeptics in threads. In one he even told us that we knew more about Tether than he did (despite founding it):

Around this same time I received a direct message out of the blue from the one and only Brock Pierce who offered to help me short Tether, the ‘dollar-backed’ stablecoin that he had created. This was a very unexpected message, as I had never messaged with Brock before, and I had never before seen someone offer to help someone else short an asset they created.

My response to this was, “I am not an accredited investor, nor do I have enough funds to make the costs worth it”, but my internal monologue was more like, “what in the ever-loving fuck is going on.” I was a college student when this happened, and apparently Brock Pierce was under the impression that now only did I have a deep desire to short Tether, but enough money to make his own efforts in facilitating this trade worthwhile. Even more strange, is that his initial message seems to be responding to a point where I said that I would be interested in shorting Tether, but in reviewing my tweets I cannot seem to determine a single time that I have ever done that.

Zooming out from the batshit absurdity of this moment we are left wondering, what in the world motivated Brock to think this was a good idea? Who decides that the solution to the problems of the beleaguered asset of their own creation is more people shorting it? Who decides that the best person you should contact out of the blue is a college student who angrily yells at you on Twitter? Who decides to spontaneously ‘run’ for president? Who decides to promise to donate more money than they have ever had? Who decides it’s a good idea to hang out in a house filled with child pornography with a fugitive from the law? The answer to all of these is Brock Pierce.

(Important note: Brock Pierce was released from custody without charges being filed after his arrest and the child sexual abuse lawsuits against him were dropped. However, it is true that Pierce did go to Spain with Marc Collins-Rector after his (Marc’s) indictment.)

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