Tether is under the searchlight among a massive obstacle in the cryptocurrency market.
The top 50 cryptocurrencies saw significant price corrections last week, coming to a head on Feb. 2. The total market capitalisation falled to about $400 bln at the time of writing- among considerable ambiguity across the board. Almost outshined, but not forgotten, is the news that Bitfinex along with Tether received subpoenas from US regulators in December, who have watched on the exchange and cryptocurrency.
That is clear, but industry experts have raised concerns over the last few months in relation to the increase in deliver of Tether which correlated with meetings in the market. Bitfinex, which is the biggest exchange in the world, threatened legal action to parties that had indicted the exchange of misbehavior.
The main reason for allegation is quite expected. Bitfinex extradites Tether tokens which are issued for US dollars on a 1:1 ratio. In other words, Bitfinex were accused of not having 1:1 reserves of dollars to issued Tether tokens.
The problem is that because one Tether token equals 1 dollar, it has been used to purchase other cryptocurrencies due to its standardized significance. This led to suggestions that the price of Bitcoin and other cryptocurrencies had been inflated because people had been buying cryptocurrencies with Tether and not actual US dollars. If Bitfinex does not have an equal reserve of dollars to back up the amount of Tether tokens in existence, things could end badly.
As quoted by the NYTimes, Pantera Capital’s Co-chief Investment officer Joey Krug said Tether tokens were issued during recent meetings in the cryptomarket.
“This became more and more concerning, because every time the markets went down, you have seen the same thing happen. It could mean that a lot of the rally over December and January might not have been real.”
Cointelegraph reported in Nov. 2017 that Tether had seen a 10,000% increase in supply in the space of a year, leading to some serious head-scratching about how the company behind Bitfinex and Tether had increased its significance in such a short amount of time. Tether has formerly claimed that it has $2.2 bln in reserve, backing up figures shown on its transparency page online. Tether eventually hired Friedmann LLP to conduct an audit to put an end to concerns among legality of its reserves.
To pour oil into the fire, news broke this week that the relationship between Tether and the auditing company came to an end – it’s not clear what led to the disruption in that relation. More importantly, there is no word on what Friedmann LLP found during their audit.
Potential Tether crash won’t be cataclysmic, says Litecoin founder Charlie Lee.
Litecoin founder Charlie Lee posted an insightful take on Twitter mentioning the current state of affairs around Tether.
Lee stated that Tether tokens (USDT) have continued to be issued after the Commodity Futures Trading Commision issued their subpoena in December 2017 is a good sign. However, he cautioned that if it comes to light that there isn’t enough reserve of dollars to back Tether tokens, the price of the token will crash absolutely. However, Lee believes that eventuality will no have a direct effect on Bitcoin and the rest of the cryptocurrency market.