The cryptocurrency market has long been plagued by concerns over transparency and manipulation. Now, two of its most influential players—Tether (USDT) and Bitfinex—are facing scrutiny from U.S. regulators.
According to a report from Bloomberg, the U.S. Commodity Futures Trading Commission (CFTC) has issued subpoenas to both companies, sparking concerns over Tether’s financial backing and its role in potential market manipulation.
The Controversy: Is Tether Really Backed by U.S. Dollars?
Tether, a so-called stablecoin, claims that each of its tokens is backed 1:1 by U.S. dollar reserves. However, doubts about these claims have persisted, as no independent audit has ever verified Tether’s holdings.
In a move that raised further suspicions, Tether severed ties with its auditor, Friedman LLP, stating that an audit would be “unattainable in a reasonable timeframe.” This decision came despite Tether’s previous assertions that its reserve holdings are published daily and subject to professional audits.
At the time of the subpoenas, Tether’s market capitalization had surged to $2.2 billion, despite the last publicly available financial report dating back to September 2017, when its market cap was just $500 million.
Adding to the opacity, the report redacted the names of the banks where Tether’s funds were supposedly held. Friedman LLP, the now-discarded auditor, explicitly stated that it did not evaluate the accessibility or usage of these funds.
Bitcoin Manipulation Allegations: Was USDT Used to Inflate Prices?
For years, critics have accused Tether and Bitfinex of artificially inflating Bitcoin’s price. The most notable allegations come from anonymous crypto analysts such as “Bitfinex’ed” and a pseudonymous researcher identified by a cryptographic hash.
One of these critics analyzed trading patterns and found that Tether issuance often coincided with Bitcoin price surges. The study identified 91 instances in which Bitcoin’s price spiked within two hours of new USDT being issued. The findings suggest that nearly 48.8% of Bitcoin’s price increase from March 2017 to January 2018 could be linked to Tether issuance rather than organic market growth.
“If there is questionable activity, a 30-80% reduction in BTC price could be forecast,” the researcher warned.
Experts Weigh In: Crypto’s Biggest Scandal?
Criticism of Tether has not been limited to anonymous online sleuths. Nicholas Weaver, a researcher at Berkeley’s International Computer Science Institute, bluntly stated that without the influx of $100 million per day of “fake” dollars via Tether, the crypto market would experience a “true bloodbath.”
Adding fuel to the fire, NYU economist Nouriel Roubini, a longtime crypto skeptic, has repeatedly called Tether “the mother of all scams” and predicted its collapse would bring down Bitcoin along with it.
Roubini tweeted in early 2018:
“Tether/USDT peg of 1:1 to the US$ is the mother of all scams/frauds. And now its pricing below parity shows it is on the way to collapse. And it will take down with it also the Bitcoin bubble.”
Regulatory Impact: What’s Next for Crypto?
The CFTC’s subpoenas mark a significant escalation in regulatory oversight of the cryptocurrency market. If the allegations of unbacked Tether issuance and Bitcoin price manipulation prove true, the crypto market could face a major reckoning.
With U.S. regulators increasing their scrutiny and institutional investors growing wary, the future of Tether, Bitfinex, and their role in the broader crypto ecosystem remains uncertain.
For now, investors are left with a critical question: Is the crypto market built on genuine demand, or is it a house of cards waiting to collapse?