It is alleged that Tether is being conjured out of thin air. They are being issued with no money backing them. Backing is important because each Tether is supposed to be backed by $1 USD. These Tethers are also alleged to being transferred to Bitfinex, one of the biggest cryptocurrency exchange in the world, who then uses these Tethers to somehow buy more Bitcoins directly or indirectly. This implies that Bitcoin's price is being artificially propped up. Why would that be bad? Well, imagine if someone was counterfeiting dollars and started buying houses in your area. How would you feel if you're one of those struggling to find a home to rent or finding an affordable home to buy, or paying off your mortgage?
The number of Tethers issued is small compared to the market cap growth of Bitcoin or cryptocurrencies as a whole, but it is argued that this relatively small number of Tethers can have such a big impact if leverage is used. Adding to the worry, it is even made possible for this to occur especially since the leadership of Bitfinex and Tether are the same. This opens up conflict of interest, as well as the possibility of collusion and co-operation to make it possible for two companies to do whatever it takes for a limited number of individuals in these two organisations to profit unfairly.
One of the counter arguments you'll find would be that the allegations are made by mainly one or two users. Specifically, there is a Twitter account with user named 'Bitfinexed', from which most of these arguments come. This however, does not invalidate them, nor their arguments, in my opinion. Disasters happen when very few people are looking. There are only a few number who are courageous and motivated enough to say and act on what they feel is right because they find it difficult to go against the 'grain': the status quo.
The gist of the arguments made by Bitfinexed are reasonable enough to me. For example, every Tether is supposed to be backed by a US Dollar. This is the main point of Tether. Therefore, it's audit should be made more public since this claim is a central piece of their existence and use-case. Why is it taking so long for any of audit reports to be publicly published and accessible given that they were established in 2014?
Another counter argument is that Bitfinex is one of the biggest and most technologically advanced cryptocurrency exchange out there. They seem to be doing well. Why should they bother making money dishonestly? If they are just criminals, then why would they even bother building such an exceptional exchange? We have to remember however that, it is not the companies that decide to go rogue. It is individuals within these organisations who have the incentive to game the rules to profit for themselves as individuals to the detriment of all others.
I found Bitfinex a pleasure to use. It has great ordering features like Market Orders, which provides for a way for traders to get out of their positions quickly by automating the selling process. With most other exchanges like Bittrex and Poloniex, you would have to keep modifying your orders while you chase the price up or down to get out of your positions. They also have Scaled Orders, which allow you to separate your orders into smaller chunks, especially if you make orders in ranges. It saves a lot of time. In cryptocurrency trading, a few seconds is the difference between hundreds or thousands of money gained or lost. From a user perspective, their system is so much faster and easier to use than most other exchanges in existence.
In defence of Bitfinex, I find it conceivable that the Twitter account, 'Bitfinexed' could be created by or funded by Bitfinex's competitors. I also find it conceivable that it may be backed by members representing banks or central banks that want to create fear, uncertainty and doubt towards Tether in an attempt to slow down the use and development of cryptocurrencies as a whole.
Giving Bitfinex and Tether the benefit of the doubt and presuming that they are indeed trying their best to provide legitimate, well-intentioned financial products and services, many of us can sympathize with the difficulty that they might be going through in dealing with banks, central banks and regulation. Perhaps, it is true that these things are unnecessarily making it for them to have to jump through hoops, making them look suspicious in the process, even though it only seems that way.
On the other hand however, the current situation weighs their shoulders with the urgency and importance of convincing the rest of us that their operation is indeed, legal or if it is unregulated, at least as fair as can be. They might consider it as an onerous expectation since nobody else is being subjected to the same level of scrutiny as they are. Unfortunately for them, because of their relative success as an exchange (Bitfinex) and as a useful cryptocurrency (Tether), they have no choice but to carry that burden.
If they don't, the consequences includes Bitfinex losing a lot of customers as no trader or investor will want to be a victim of an exchange falling under investigation with their funds potentially locked up for a long time, and worse, losing their funds entirely. Currently, Tether is the leader in the very short list of stably-priced cryptocurrencies. The longer this period of uncertainty drags on, the more likely it is for Tether to lose its lead as funding, investment and development get diverted to one of the competing projects such as NuBits and BitUSD or some other solution that does not yet exist.
I think Bitfinex and Tether provide great solutions for most people involved in cryptocurrencies. However, I believe that whether they like it or not, fairly or unfairly, it is urgent and important for them to show us audit reports and other disclosures and communications to assure the rest of the crypto-community. In the meantime, their competitors should be making strides to improve their game. This is their chance to overtake these behemoths and become the new market leaders.