Capital Outflow from Crypto Exchanges Ignored Due to Bitcoin RallyAuthor: Sherlock GomesLast Updated: 16 May 2019 As the price of Bitcoin is rising steadily, the market is overlooking the quick outflow of capital from crypto exchanges like Bitfinex.Where nobody looks for cluesCapital outflows on some of the biggest cryptocurrency exchanges are pointing towards issues in the digital assets industry. However, rising prices of Bitcoin are masking the worrying trends. While the outflows look counterintuitive at the moment, the market’s recent run-ins with the law and fraud, manipulation charges are quickly catching up with its momentum.According to London-based blockchain data provider Token Analyst, the capital outflows in popular exchanges like Kraken, Binance, BitMEX, and Bitfinex are far higher than inflows. In the past 5 days, the outflows have been higher by $622 million. While Bitcoin’s price went up by 30% last week, Bitfinex’s alleged controversy with Tether is leading to problems in the market.Recently, the New York Attorney General Letitia James alleged that Bitfinex used $850 million of its sister company Tether’s assets to mask its losses. The case cited co-mingling of the client and corporate funds and hiding of significant losses for the company. Bitfinex hit back by saying that the so-called “losses” were actually funds seized by various government authorities.Because of the increasing tensions with Bitfinex, investors are now moving quickly to their safe haven- Bitcoin. The largest and most liquid token is finding increased demand from investors who are seeking protection from the exchange’s problems.The problem with Bitfinex and TetherAccording to the University of Texas at Austin’s finance professor John Griffin, Tether’s insufficient backing could be the reason behind the outflows. In an email to Bloomberg, he wrote,So smart customers will not custody their funds on exchanges and pull their crypto off exchanges. This could put further upward pressure on Bitcoin prices as one would rather take fake money and exchange it to Bitcoin.”Answering the New York AG’s allegations, Tether had earlier revealed that the company only backs 74% of its total outstanding coins by cash and cash equivalents. As Tether is a stablecoin which should be priced equal to $1, only 74% of cash backing is a serious problem. Bitfinex experienced net outflows of over $1.7 billion in Bitcoin and Ether since April 26, after the AG’s allegations.Bitcoin’s price was at a 6% premium on Bitfinex compared to other exchanges showing people are willing to transfer their money to BTC, a safer option. The premium did not continue this week as Bitfinex announced that it had raised $1 billion via token sales.Griffin alleged that the current price movement is the same manipulation activity that the market has seen before.