Is this hissing sound the sound of air coming out of the crypto bubble? Bitcoin hit a new high of more than $ 58,000 on February 21, after a host of large companies and investors, led by Tesla, signaled that they were taking cryptocurrency increasingly seriously as an asset class and medium of exchange. However, by February 23, the price had fallen more than a fifth from those dizzying heights when rumors of a large-scale liquidation of leveraged bets surfaced. Then trust in the cryptosphere knocked again when one of the most closely watched components, tether, fell victim to American regulators.
Tether is a so-called stablecoin. Its issuer, a company of the same name, has long claimed that Tethers – of which more than 34 billion are in circulation – are backed one-to-one by dollars. A purported benefit of such pegging is lower volatility; The price of Bitcoin, on the other hand, is notoriously unpredictable. Another reason is that stablecoins make it easier to switch between cryptocurrencies and normal sorting.
Doubts have long aroused Tether’s claim to be a kind of digital dollar. Critics say the one-on-one claim looks scaly. They also suspect that Tether – not least by Bitfinex, a cryptocurrency exchange owned by some of the same people – was used to manipulate Bitcoin. An academic study found that purchases at Tether “were timed after market downturns and resulted in a significant spike in Bitcoin prices”. A related issue is the degree of control the owners of Tether have over the offering. While only a fixed number of Bitcoin can be “mined”, tethers can be issued at will, leaving those behind the stable bank coin bank-like printing capabilities.
The growing nausea spurred the investigators on. New York attorney general Letitia James has spent more than two years undoing Tether’s opaque operations and relationship with Bitfinex. On February 23, she branded the companies “fraudulent” and “misleading”, fined them $ 18.5 million and ordered them to stop trading with New Yorkers. For the agreement, Tether or Bitfinex did not have to admit any wrongdoing.
Damn Mrs. James’s charge. Tether, she says, lied about the dollar support. The “self-proclaimed review” – after an external audit was abandoned – was supposedly a sham: the money supposedly backing the Tethers had been deposited there that morning, closed the investigation, and part of it was passed on to someone else soon after Brought place. In addition, Bitfinex was not up to date with hundreds of millions of dollars lost by a third-party payment processor allegedly based in Panama. The attorney general says Bitfinex falsely claimed it knew where all the money was when asked about it. As part of the settlement, Bitfinex and Tether have agreed to submit to a reporting obligation.
This ensures that a dark, but surprisingly large, part of the cryptocurrency world is illuminated. While Tether is nowhere near as well-known as Bitcoin, its influence has grown enormously. A recent analysis found that most Bitcoin purchases on multiple crypto exchanges, including Binance, Bit-Z, and HitBTC, are made through Tether. (In contrast, Coinbase, a smaller but more transparent exchange that will soon be listed on the exchange, is mostly paid for in dollars, euros and pounds sterling.)
According to the analysis, more than two-thirds of all Bitcoin bought on all crypto exchanges in an investigated period of 24 hours were bought with Tether. In other words, Tether is way more than just a corner of the market. Indeed, its rampant coinage – hundreds of millions reportedly pumped out once in a single day – has led to jokes: In one popular meme, an armored truck with the Tether logo races past and money oozes out of its open back door.
Because of this, the New York investigation results – along with reports from other probes, the increasing discussion of government crackdown on opaque trading, and recent market wobbles – are likely to hit many punters in the $ 1.4 trillion cryptocurrency market. Make dollars nervous. JPMorgan Chase bank strategists recently summarized the risk in a note: “Should problems arise that could affect the willingness or ability of domestic and foreign investors to use Tether, the most likely outcome would be a severe liquidity shock to the broader cryptocurrency market . “An untied market is a daunting prospect for many.