The wildly fluctuating prices of cryptocurrencies are a feature not a bug, where speculators are concerned. That’s always made the proposition of the alleged “stablecoin” Tether an odd one. According to New York’s attorney general, the entire operation may have been operating on a lie.
Underpinning Tether’s sales pitch is the proposition that its coins were backed 1-to-1 by fiat currency—in other words, one Tether is one dollar because iFinex Inc., the owners of Tether and coin exchange Bitfinex, supposedly had that money stashed away. That made it an appealing coin in which to park funds between trades, even though the coin has been dogged by hacks and rumors of fraud.
In what may be the final nail in Tether’s coffin, Leticia James, New York attorney general, concluded yesterday that “the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.” In other words, the money supposedly backing Tether’s coins simply isn’t there. It’s believed that the money has been stolen or laundered through a secondary firm iFinex used to hold them called Crypto Capital, though the disappearance of a near-billion dollars was not disclosed to anyone investing their funds in the coin.
James obtained an injunction from the New York State Supreme Court, which, among other demands placed on the company and its founders, bars them from continuing to disseminate Tether.
The Commodity Futures Trading Commission hit the firm with subpoenas back in 2017, and traders spotted the names of iFinex executives included among the leaked Paradise Papers. But concerns that Tether may not be operating in good financial faith extend beyond the coin itself. Research indicates Tether was used to directly manipulate the price of the leading cryptocurrency, Bitcoin, and the value of many of the most popular coins tends to rise and fall with the price of Bitcoin.
As Bloomberg reported:
Correspondence between a senior Bitfinex executive and Crypto Capital included in the attorney general’s complaint suggests the exchange was under immense pressure in October to gain access to funds amid a spike in client withdrawal requests. “Please understand all this could be extremely dangerous for everybody, the entire crypto community,” the executive wrote, according to the attorney general. “BTC could tank to below 1k if we don’t act quickly.”
At the time of writing, Bitcoin is down by around 5.1 percent.
Bitfinex has vehemently denied the AG’s findings. “Both Bitfinex and Tether are financially strong – full stop” the company wrote in a statement, claiming “we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded.”
According to CoinMarketCap, in the past year Tether’s value has fluctuated between $1.03 and $0.96. Following the AG’s announcement, it sunk 1.6 percent, as did all but 12 of the top 100 most-traded virtual currencies. According to CNBC, the digital currency market lost $10 billion worth of value within the first hour of the New York AG’s announcement. Among those that saw their value increase was USD Coin—another “stablecoin” making almost identical claims to Tether.