Tether (USDT) will Tank the Cryptocurrency Market?

First, let’s go back to the 9th of July last year when The New York Court approved an investigation to study all the businesses behind stablecoin Tether (USDT). At the time of writing the article, USDT has hit $24 billion market capitalization, which is $19 billion more than a year ago.

Brock Pierce, the founder of Tether launched USDT in 2014 for traders to quickly enter or leave a position and not be affected by the high volatility of the cryptocurrency market. Tether was designed to be backed 1:1 by the US dollar, which means that the price of the digital currency should be more or less stable.

Backed or not Backed?

However, in November 2018 the rumors of stablecoin not being backed 1:1 and not being so stable as it was supposed to come up to Letitia James, the former state attorney general of New York. She immediately started an investigation on Tether and Bitfinex, but both companies filed an appeal, which has paused an investigation. But in July 2020 New York Court resumed against Tether and Bitfinex.

There were not so many banks willing to work with Tether and Bitfinex at the time. So Bitfinex used the payments system Crypto Capital Corp based in Panama. Crypto Capital has not the best reputation as they worked with money laundering, financial crime, and securities fraud organizations. Their working scheme was like this: open a shell firm to have a bank account and use it till it gets closed down than set up a new company and so on.

iFinex, the parent company of Bitfinex suddenly had a black hole in its finances when $850 million of its funds were held up at Crypto Capital. When the money vanished, Bitfinex and Tether hid the losses with a great variety of unbelievable and still unexplained tricks. This led to the idea that Tether was printing USDT without it being backed by the US dollar.

Interestingly, Crypto Capital had lost chat logs about funds that were included in a lawsuit filed by the Attorney General’s office. These logs were between a Crypto Capital representative and a Bitfinex representative.

So what's next?

Tether and Bitfinex are obligated to submit documentation about their financial relationship by the 15th of January 2021, meaning tomorrow. Tether printed the scarcity of $850 and was allegedly given to Bitfinex to cover up the losses Crypto Capital made. Tether and Bitfinex supposedly can't actually submit anything by not revealing their cover-up.

In the end, there is a high chance that USDT isn't backed 1:1 by the US dollar by a lot of investors and this fact could cause more investigation in the future by the attorney general. For today Tether is still unaudited, meaning no one checked the bankroll of USDT if there really is $24 billion there.