Embattled startup Tether increased the supply of USDT tokens dramatically in December after being handed a subpoena by federal regulators, raising fresh suspicion the company has been manipulating the bitcoin market.
USDT Circulation Spikes
Data provided by Bitcoin.com and CoinMarketCap have confirmed that the supply of USDT tokens has risen by about one-third since Dec. 6, the day the U.S. Commodity Futures Trading Commission (CFTC) issued the subpoena. In January alone, the number of USDT tokens released to the market was 850 million.
The sharp increase in new tokens coincided with a record rally in bitcoin and other cryptocurrencies in December and early January. Although many in the cryptocurrency community have outed Tether as a scam, a wholesale collapse of the company could have a devastating impact on the market.
On Jan. 24, a website by the name of tetherreport.com claimed that the digital currency was responsible for 48.8% of bitcoin’s price rally in 2017. The authors, who remain anonymous, concluded that more Tether is created when the price of bitcoin falls.
On the flip side, there’s strong reason to believe that the company’s collapse would have the opposite impact. Just as Tether propped up the market, it could also be responsible for a 30% to 80% price correction, the authors claim.
Controversy surrounding Tether has been partly responsible for the market’s sharp correction in recent weeks. Combined with regulatory uncertainty and a series of cyber attacks targeting cryptos and ICOs, the digital currency market is down more than 50% from record levels .On Friday, the price of bitcoin fell below $8,000 for the first time since late November, when the market was heading in the opposite direction.
At the time of writing, the total supply of USDT tokens was 2,217,140,914. Each token is priced at $1.00, giving the cryptocurrency a market cap of more than $2.2 billion.
Dollar-Backing Under Scrutiny
Unlike other cryptocurrencies, Tether’s USDT token is supposedly pegged to the dollar, making it an attractive substitute for the greenback. Although the company has produced documents disclosing its holdings, it has not provided conclusive evidence of its financial backing. A document posted to the company’s website shows a balance of $443 million as of Sept. 15, although no details about the bank or account holders were provided.
Investors recently learned that Tether is run by the same CEO as Bitfinex, one of the world’s largest cryptocurrency exchanges. Like Tether, Bitfinex was also subpoenaed by U.S. regulators in December. That both companies are run by the same management has raised suspicion over collusion in propping up the bitcoin market.
Analysts cited by CNBC have claimed that a growing number of USDT has shifted to the Bitfinex exchange in recent months. This could be to cover up the exchange’s solvency woes.
Bitfinex was the fifth largest crypto exchange on Saturday when measured by market volume. The platform processed nearly $430 million in bitcoin trades, according to CoinMarketCap. It also facilitated the buying and selling of $194 million worth of ether. Upbit was the top ranked exchange, followed by Binance, OKEx and Bithumb.
Many investors are hoping for a swift resolution to the Tether controversy, even if it ends in a debacle. Their rationale is simple: if Tether is manipulating the market, it should be stopped so that the forces of supply and demand prevail. In the long run, this will only serve to strengthen the market.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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