Bitfinex is in a bit of a spot here, having been flagged by New York’s highest legal official for some (allegedly) pretty dodgy financial practices. Readers are probably already familiar with the backstory that involves the crypto exchange trying to be sneaky and hiding humongous losses worth $850M by conflating corporate and client funds.
Things didn’t turn out too well for the company once the matter came into the public domain. And by the end of April, New York Attorney General Letitia James even secured a court order to terminate all Bitfinex and Tether operations in the state.
And here comes the interesting bit — the top management of Bitfinex seems to have figured that the best way to handle the crisis, apparently, would be to raise somewhere around $1 billion from investors to patch the company’s currently shaky financials in an initial exchange offering.
Bitfinex’s Token Sale
For those out of the loop, word on the street is that Hong Kong-based IFinex Inc., the parent company that oversees both Bitfinex and the stable coin Tether, plans on issuing $1 billion of a new token called LEO.
Of course, the speculative reports didn’t take long to go viral over the weekend, drawing concerns from many in the wider crypto community. Besides all the legal troubles looming over Bitfinex and Tether, there’s also the issue of a dump of this magnitude adversely affecting the ongoing Bitcoin rally.
While there is no official word yet from Bitfinex or its parent company IFinex, many industry insiders such as crypto bull Thomas Lee (Fundstrat Global Advisors) are saying that the LEO token sale could be already oversubscribed. Speaking with Bloomberg, Lee, also noted that he had no conclusive evidence that the offering actually exists.
Lee also cautioned traders that dumping $1 billion of the new token could have some serious side-effects for Bitcoin, which is indeed worrying considering that the crypto king has recently displayed signs of a possible bounce back.
$1 billion IEO is a lot of “new” token supply and probably has a short-term negative impact on $BTC #bitcoin and other crypto as the market needs to absorb this supply…
…Unless all the purchasers of the IEO come are new to crypto (fiat to crypto), which makes less sense. https://t.co/no9LlN0yJQ
— Thomas Lee (@fundstrat) May 4, 2019
So What Exactly Is Bitfinex Planning?
For starters, Bitfinex and Tether Ltd. have so far vehemently denied any wrongdoing and are trying to vacate/modify the injunction brought against them. Their counter argument is basically based on the claim that the alleged commingling of funds was actually a loan. It was a decision taken after the company lost access to all the funds that regulators seized from payment facilitator Crypto Capital Corp.
If Bitfinex can pull off the (so-far) speculative goal of raising $1 billion in Tether, the exchange will find itself in a sweet spot to reinforce its cash reserves. That, in turn, will be more than enough to fully cover for the stablecoin at the heart of this controversy.
This is important because Bitfinex traders use Tether as a substitute medium for fiat. The whole process basically derives its fuel from Tether Ltd’s claim that each Tether token is backed by $1 in the company’s reserves.
So is this strategy going to work? Will Bitfinex and Tether be able to get back on their knees before it’s too late? Jeff Dorman, CIO at Los Angeles-based Arca Funds, thinks they will survive. In an email conversation with the Bloomberg, the industry insider prophecied that Bitfinex will soon get out of the mess and resume operations as usual, but not without “a well deserved reputational black eye.”
