Bitfinex, one of the biggest cryptocurrency exchange platforms in the world, is under scrutiny as rumors have been going around that it has been using one of Puerto Rico’s financial institutions as a banking partner.

According to three people with knowledge on the matter, Bloomberg has reported that Bitfinex has opened accounts with Puerto Rico’s Noble Bank International. The unnamed sources said that the cryptocurrency exchange giant had held an account with Noble Bank International since 2017. This move by Bitfinex comes after Wells Fargo & Company dumped the crypto platform earlier in 2017.

Bitfinex is a cryptocurrency trading platform that is owned and operated by iFinex Inc and founded in 2012. Since 2014 to date, Bitfinex has been the largest bitcoin exchange platform. Since the exit of Wells Fargo, it has been a mystery how the exchange platform could transfer fiat money without a bank.

Source: CoinMarketCap

The Exit of Wells Fargo & Co.

Wells Fargo, an American banking giant that has its headquarters in San Francisco, California, prohibited four Taiwan banks – First Commercial Bank, KGI Bank, Hwatai Commercial Bank, and Taishin Bank – from completing outbound wire transfers on behalf of Bitfinex. According to Bitfinex CEO, Jan Ludovicus van der Velde, Wells Fargo’s decision was a threat to the entire business. Bitfinex sued the bank over the transfer freeze, but later dropped charges. According to online documents, Bitfinex used a string of third-party accounts based in Panama to keep afloat, after Well Fargo’s exit.

Tether

Tether is a digital currency traded on crypto exchanges all over the world. It is closely associated with Bitfinex, and they share a management team, including Bitfinex CEO, Jan Ludovicus van der Velde. Tether, however, has never disclosed a full third-party audit verifying that the USD fully backs its tokens. The currency is seen as a sharp contrast to bitcoin’s volatility, as it is very stable and can act as an oasis for cryptocurrency investors.

Noble Bank International

In 2017, the company sought the assistance of Crypto Capital Corporation, a private Panamanian firm. Through the firm’s Canadian president, Ivan Manuel Molina Lee, who resides in Panama City, the firm has links to Bank Spoldzielczy in Skierniewice, Poland, which Bitfinex used for euro deposits, and the Portugal-based Caixa Geral De Depositos. However, representatives from the firm refused to comment, and a spokesperson for Caixa Geral denied dealing with cryptocurrencies.

Noble Bank International, a financial institution based in San Juan, Puerto Rico. It stepped in for Bitfinex, and it is affiliated with the crypto exchange platform. As reported by a person with direct knowledge of the matter, the bank connects crypto users with exchanges by housing both customer and company accounts internally. A Bitfinex user who has a Noble account can have dollars or euros moved internally to the Bitfinex account, or vice versa, with the aid of intrabank transfers. Noble Bank does not hold the funds, according to its website. Instead, it uses Bank of New York Mellon Corporation as a third-party custodian.

Puerto Rico experienced a surge in cash deposits related to cryptocurrencies in 2017. According to a research report by trading platform, BitMEX, the cash and its equivalents held by Puerto Rico’s financial institutions such as Noble, skyrocketed to a whopping $3.3 billion at the end of 2017 from $191 million in 2016. According to a person with direct knowledge on the matter, Noble is almost entirely responsible for that increase.

Lack of Transparency

In December 2017, the British Virgin Islands-based Bitfinex and Tether were given a subpoena by the US Commodity Futures Trading Commission (CFTC). There is an ongoing investigation by the regulatory body if Tether’s $2.1 billion in customer money backing its virtual coin is actually in existence, as said by an anonymous confidant in January 2018. Bitfinex and Tether are yet to provide enough evidence of its holdings to the public.

However, because of the lack of transparency from both companies, it has led critics to accuse them of artificially pumping the price of bitcoin and other digital currencies. According to a statement made by Tony Arcieri, a software engineer, an independent security analyst, he suspected that Tether was being used to conveniently counterfeit hundreds of millions of dollars of perceived value which were immediately reinvested into bitcoin.

The Aftermath

Sorted by Volume, Tether is # 2; Source: CoinMarketCap

The aftermath of the Bitfinex – Tether probe would have repercussions around the world. Tether, which is the most traded virtual money behind bitcoin, has become the glue that holds together a lot of the $375 billion cryptocurrency market. Most financial institutions have steered clear of the cryptocurrency market because of its potential for money laundering and terrorist funding. The Tether is seen as a stable value in place of the dollar whenever bank accounts are difficult or impossible to get, and an interruption or collapse will mean that cryptocurrency traders will find it extremely difficult to cash out.

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