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Bitfinex Tether fraud investigation causes bitcoin price to dive

The price of bitcoin plunged in trading Tuesday as news emerged that leading cryptocurrency exchange Bitfinex and related company Tether are under investigation by authorities on potential fraud allegations.

The investigation was launched by the U.S. Commodity Futures Trading Commission. It’s looking into whether Tether, both a company and a cryptocurrency owned and run by Bitfinex (formally BTXNA Inc.) and claimed to be pegged to the U.S. dollar, has U.S. dollars in reserve to back the value of it. Some observers suggested that it never actually did.

Tether, the cryptocurrency, has been used as a means to trade bitcoin. That has caused some, going back as far as December, to suggest that Tether is behind much of bitcoin’s seemingly serendipitous rise last year and that if Tether should crash, so to would bitcoin.

Bloomberg explained it this way: “Tether’s coins have become a popular substitute for dollars on cryptocurrency exchanges worldwide, with about $2.3 billion of the tokens outstanding as of Tuesday. While Tether has said all of its coins are backed by U.S. dollars held in reserve, the company has yet to provide conclusive evidence of its holdings to the public or have its accounts audited. Skeptics have questioned whether the money is really there.”

Bitfinex said in a statement that it routinely receives “legal process from law enforcement agents and regulators conducting investigations” and that its policy is not to comment on any such requests. Tether said earlier in the week that its relationship with audit firm Friedman LLP had ended because the audit process by the firm was “unattainable in a reasonable time frame.” That added further fuel to the rumors that all was not as claimed by the company.

The investigation, on top of Tether’s decision to fire its audit firm, seriously spooked investors, with all major cryptocurrencies seeing heavy selling. As of 10:45 p.m. EST, bitcoin was trading at $9,908.38, well below the $11,000 to $13,000 for which it has traded for much of the month.

Image: Pixabay

 


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