Had a conversation with a knowledgeable friend who invests in cryptocurrencies. He thinks that the concern about Bitfinex/Tether (hereafter, I'll just refer to both as Bitfinex) is overblown, and perhaps driven by a competitor (or a government agency) funded sock puppet accounts.
His points were:
1) If Bitfinex wanted to scam, it would be easier to manipulate their own internal trading in secret (as Mt. Gox did) than by inflating a publicly viewable, heavily scrutinized cryptocurrency.
2) That they're not public about their banking relationships doesn't mean that they don't have banking relationships. They're trying to avoid regulatory harassment as much as possible, so it make sense to keep their banking relationships quiet.
3) A billion dollars is a drop in the bucket relative to global wealth. There are probably enough wealthy people who want to easily move money between exchanges to support a billion Tethers.
4) Audits are harder to do than they seem. They take a lot of time and effort to do, especially for cryptocurrency companies, where they often have to try to squeeze into regulatory frameworks that were not created with them in mind, and which auditors don't really know how to handle. For example, in order to avoid being regulated as a security, Tether makes no promises that Tethers can be redeemed for anything of value. Should an auditor count that as a debt obligation?
I'm most persuaded by the argument that there are easier ways to scam than printing up a bunch of unbacked Tethers. I'm also less skeptical that there would be a demand for a billion Tethers in such a short amount of time.
However, I still think not providing a public, independent audit is a severe failure. Bitfinex's officers have also done other shady things (like allow wash trading). And there are many examples of exchanges that have failed or robbed their customers, often after exhibiting the signs that Bitfinex is exhibiting. (Making it difficult to withdraw funds, lack of transparency, lack of communication, etc) Even if there are innocent explanations for Bitfinex's behavior, they certainly don't look much different than many other failed exchanges from the past.
His points were:
1) If Bitfinex wanted to scam, it would be easier to manipulate their own internal trading in secret (as Mt. Gox did) than by inflating a publicly viewable, heavily scrutinized cryptocurrency.
2) That they're not public about their banking relationships doesn't mean that they don't have banking relationships. They're trying to avoid regulatory harassment as much as possible, so it make sense to keep their banking relationships quiet.
3) A billion dollars is a drop in the bucket relative to global wealth. There are probably enough wealthy people who want to easily move money between exchanges to support a billion Tethers.
4) Audits are harder to do than they seem. They take a lot of time and effort to do, especially for cryptocurrency companies, where they often have to try to squeeze into regulatory frameworks that were not created with them in mind, and which auditors don't really know how to handle. For example, in order to avoid being regulated as a security, Tether makes no promises that Tethers can be redeemed for anything of value. Should an auditor count that as a debt obligation?
I'm most persuaded by the argument that there are easier ways to scam than printing up a bunch of unbacked Tethers. I'm also less skeptical that there would be a demand for a billion Tethers in such a short amount of time.
However, I still think not providing a public, independent audit is a severe failure. Bitfinex's officers have also done other shady things (like allow wash trading). And there are many examples of exchanges that have failed or robbed their customers, often after exhibiting the signs that Bitfinex is exhibiting. (Making it difficult to withdraw funds, lack of transparency, lack of communication, etc) Even if there are innocent explanations for Bitfinex's behavior, they certainly don't look much different than many other failed exchanges from the past.