In the wake of this month’s significant Bitcoin crash, a look into Bitcoin-related exchanges has turned into a whodunit around rumors that manipulators fed Bitcoin spikes by engaging in carefully timed market activities.
At the center of this is Tether, a currency billed as a “stablecoin” that is supposed to be backed by the U.S. dollar (which was itself one time backed by gold.)
Taking the unusual step of maintaining a dollar in the bank for every coin issued is a strategy that has propelled Tether toward the market spotlight – but now that spotlight is being used by investigators to see whether a link between Tether and Bitcoin could help explain some of the volatility that has happened throughout the past year.
After a spike around $20000, Bitcoin has fallen 70% within a year – that’s not good news for anyone who bought on the spike, and now that’s leading to suspicion that an exchange called Bitfinex might have allowed some parties to illegally move markets.
The general rumor is that traders used Tether to buy Bitcoin during a dip and prop up the market value that way.
The U.S. Justice Department has issued subpoenas, but the heads of agencies aren’t talking to the press, and neither are the chief executive officer of Tether and Tether’s general counsel, both of whom, according to common reports, are not answering media calls.
A Bloomberg article questions whether cryptocurrency rises were “fanned on by market tricks” – prosecutors talk about using fake market orders or ‘spoofing’ to direct trader behavior on the exchange.
If any of this is true or verifiable, it’s going to lead many investors to recalibrate their market approaches. It could also lead to serious ramifications for anyone who tried to pump up the Bitcoin bubble as the value was going through the roof. Without being verified, though, it does seem to point to an inflated “bubble” effect that has now decidedly burst (unless Bitcoin goes to $2000 or $1800…)
For now, in the absence of direct statements from the SEC, we have posts like these on reddit espousing one or the other point of view: whether Tether stopped printing because of subpoenas, and whether this establishes culpability.
“The question isn’t whether they can afford to back the USDT now,” writes poster nelisan, “it’s whether they could over the last year that they were printing them. And where exactly is the audit?”
“Dont you think if they did stop printing after the subpoena, market will get bulldozed?” responds ChowMien95.
“Btw its (sic) also doesn’t matter how much cash they reserved, its more of the fact the logs are accurate.”
Is there something fishy on Bitfinex? Did some traders manipulate Bitcoin, and will they be brought to Justice? Watch this space – stay tuned.