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.
Since you’re here …
… We’d like to tell you about our mission and how you can help us fulfill it. SiliconANGLE Media Inc.’s business model is based on the intrinsic value of the content, not advertising. Unlike many online publications, we don’t have a paywall or run banner advertising, because we want to keep our journalism open, without influence or the need to chase traffic.
The journalism, reporting and commentary on SiliconANGLE — along with live, unscripted video from our Silicon Valley studio and globe-trotting video teams at theCUBE — take a lot of hard work, time and money. Keeping the quality high requires the support of sponsors who are aligned with our vision of ad-free journalism content.
If you like the reporting, video interviews and other ad-free content here, please take a moment to check out a sample of the video content supported by our sponsors, tweet your support, and keep coming back to SiliconANGLE: