Tether puts the crypto-world in trouble.
February 1, 2018 7:09 am,
Tether and Bitfinex, the company behind a digital coin that claims to track the US dollar, recently are under the spotlight for the wrong reasons.
It all started with the ‘dissolution’ of the relationship between It, the issuer of the dollar-pegged cryptocurrency USDT with audit firm Friedman LLP.
Tether’s market cap is over $2.2 billion as on 30th January 2018. The last publicly available document detailing the company’s fiat deposits is from late September when its market cap was under $500 million. The names of the banks where it’s funds are held were redacted in that document, and Friedman wrote that it “did not evaluate the terms of the above bank accounts and makes no representations about the Client’s ability to access funds form the accounts or whether the funds are committed for purposes other than it’s token redemptions.”
Tether, a cryptocurrency that claims to be backed by hard cash, came into the picture after reports that the Commodity Futures Trading Commission last month subpoenaed documents from the digital-asset platform. Tether and its sister company Bitfinex have been raising eyebrows within the digital-currency community, as critics question the accuracy behind assertions that every tether is supported by actual bank reserves.
In recent months, the issuance of tether-coins has caught the eye of market participants: in January, Tether Limited printed 850 million tethers, often referred to as USDT, but so far it has yet to provide evidence that $850 million is in reserve to support that offering. According to Tether, its assets total $2.3 billion with as many tokens trading on exchanges such as Bitfinex and Kraken.
Bitcoin could crash up to 80 percent if it turns out the price has been artificially pumped up by controversial cryptocurrency tether, analysts have warned.
The root of the controversy is whether the company behind it, also called Tether, is telling the truth when it claims that every unit in circulation is matched by a US dollar it holds in reserve. If the company has a dollar for every tether, that means, in theory, any holder can sell tethers back to the company for an equal number of dollars at any time. This belief keeps the value of a tether pegged to a dollar.
If traders lose faith in this, they could end up triggering the crypto version of a bank run. It helps stabilize cryptocurrency exchanges in various ways, so its collapse could also cause some exchanges to topple, wiping out billions of dollars of investments overnight and potentially undoing much of the public’s growing interest in new technologies like bitcoin.