Cryptocurrency Market on High Alert as CFTC Subpoenas Bitfinex, Tether
The crypto market was under renewed pressure Tuesday after U.S. regulators subpoenaed one of the world’s biggest digital currency exchanges and a startup known for converting cryptocurrencies into fiat money.
CFTC Issues Subpoenas
Bloomberg and CCN reported Tuesday that the U.S. Commodity Futures Trading Commission (CFTC) issued subpoenas to Bitfinex and Tether last month. Although the nature of the hearings has not yet been confirmed, speculators say it could be related to both companies sharing many of the same executives. Tether has been accused of running a fractional reserve to inflate bitcoin prices and thus cover up the financial issues facing Bitfinex.
Although it is not entirely clear from the official websites of Bitfinex and Tether who runs the firms, an email obtained from Bloomberg indicated that Jan Ludovicus van der Velde is the CEO of both. Van der Velde’s LinkedIn page says he is currently a resident of Taiwan.
Tether Under the Spotlight
Tether has been the center of a media firestorm this week after the company unexpectedly split with its auditor Friedman LLP, fueling critics who have long been suspicious of its backing. The company, which created the USDT cryptocurrency that is allegedly pegged to the U.S. dollar, has not been able to verify conclusively that its accounts are indeed backed by the greenback.
A document that appears on Tether’s website shows it had $443 million in deposits as of Sept. 15, although the names of the banks and account holders were blacked out.
Regarding its dissolved relationship with Friedman, Tether issued the following statement on Saturday:
“Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame.”
Tether is still recovering from a $31 million cyber heist last November, which exposed underlying financial issues facing the company. According to critics, one of the telltale signs of Tether’s solvency issues has been its persistence in minting USDT tokens. More tokens in circulation gives the company more opportunity to buy bitcoin and drive prices even higher.
The global cryptocurrency market shed tens of billions of dollars on Tuesday, with bitcoin briefly falling below $10,000. The combined value of all coins in circulation bottomed out near $492 billion, according to CoinMarketCap. That represents a decline of more than 12%.
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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