With the massive correction of the cryptocurrency market in the last few days, Tether has become the center of attention.
The first 50 cryptocurrencies on the global market suffered huge price corrections last week. The total market capitalization fell to around 400 billion dollars and the reason is the high uncertainty reigning the cryptocurrency market these days. The news that Bitfinex along with Tether was subpoenaed by the American regulators in December last year went almost completely unnoticed, but it has not been forgotten.
Experts from the crypto world expressed concerns in the last few months about the increased emissions of Tether coins, linked with the rise of the prices on the cryptocurrency market. Bitfinex, the largest cryptocurrency exchange in the world, threatened to sue the clients who has accused the exchange of breaking the rules.
Bitfinex emits Tether tokens for US dollars on a 1:1 ratio. To put it simply, Bitfinex was accused of not having 1:1 reserves of dollars to cover the emission of Tether coins.
The problem is that one Tether coin is equal to one US dollar and is used to buy other cryptocurrencies because of its standardized value. This culminated with suggestions that the price of bitcoin and other cryptocurrencies was inflated, because people were buying cryptocurrencies with Tether and not real American dollars. If Bitfinex does not have an equal reserve of dollars to support the emitted Tether coins, things could go bad.
According to the NYTimes, the co-president of Pantera Capital, a blockchain investment fund, Joey Krug, said Tether coins were emitted during the recent growth of the cryptocurrency market: “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.”
In November last year, it was published that Tether managed to increase its supply by 10,000% in the period of one year, which brought many questions how the company behind Bitfinex and Tether managed to increase its value in such a short period of time. Tether had claimed earlier it has the reserves of 2.2 billion US dollars, which was confirmed by the numbers presented on its network transparency page. Tether later hired an audit company called Friedman LLP to confirm the existence of its reserves, but the cooperation ended soon without any explanations and no details about the audit were ever published.
The founder of Litecoin, Charlie Lee, published a tweet related to Tether at the end of January. Lee thinks the fact that Tether coins are still emitted after the subpoena in December is a good sign. However, Lee warned that the price of Tether will fall abruptly if it turns out the dollar reserves of the cryptocurrency are not enough to cover the emitted coins. Most importantly, Lee thinks it would not have a direct influence on the price of bitcoin and other cryptocurrencies on the market. Lee said: “With respect to the Tether situation, it’s expected for CFTC to subpoena Bitfinex to investigate if there are any wrongdoings. The fact that the subpoena is in December 2017 and they have still continued issuing USDT is good news. USDT is just like any other altcoin.”