Bitfinex Security and Regulatory Issues

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency and metaverse ecosystems.

Security Issues

Initially, Bitfinex struggled with its online security. For example, Bitfinex was first hacked in 2015 when about 1,500 BTC were stolen from users’ wallets.

The very next year, Bitfinex was hacked again where almost 120,000 BTC were siphoned from the exchange. At the time, these coins were valued at $760 million, making this the second-largest online hack ever to have occurred on an exchange. In light of these security breaches, Bitfinex has been active in beefing up customer security.

Bitfinex now stores 99.5% of all client assets off-line in cold storage. And these assets are strategically scattered across the globe. In addition, traders are now required to go through a two-level authentication process for their login credentials and withdrawals. The first security level is the 2FA (Two-factor authentication) layer. The second security level is the U2F (Universal 2nd Factor) which utilizes a physical security key.

Regulatory Issues

In 2017, Bitfinex’s bank account funds were frozen by its correspondent bank Wells Fargo and thereafter faced stiff US regulatory scrutiny. Perhaps this is one reason why Bitfinex no longer has a US presence.

Bitfinex also lost control of over $850 million of client funds due to one of their payment processors having funds seized in Poland, Portugal, and the US. And then there were management issues related to the stablecoin Tether. In 2018, the New York Attorney General’s office accused Bitfinex of covering up this $850 million loss.

Specifically, the Attorney General’s office concluded that Bitfinex covertly used funds from Tether while “engaged in a coverup to hide the apparent loss of $850 million of co-mingled client and corporate funds.” The company denied these accusations

Conclusion

If you are a US-based investor, Bitfinex is definitely not for you since their services are not even available in the US. If you are a professional, active trader that can stomach the potential risk that an unregulated exchange presents, the advanced services, and low fees offered by Bitfinex present some nice advantages. And if you are new to cryptocurrencies, using Bitfinex is probably not for you. This exchange has no real-time customer service, it requires a large initial account deposit, and it has experienced repeated security hacks.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity with which Thomas Wettermann has been, is currently, or will be affiliated.

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk, and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment; therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

Thomas Wettermann is not an independent financial advisor. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as a general market commentary of Thomas Wettermann and does not constitute investment advice. Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form.