After Bitfinex Subpoena, Tethers Still Do Their Work

The Bitfinex exchange, avoiding the handling of cash through the Tether tokens, is closed for US-based investors.

This January, even cryptocurrency newcomers learned of the Tethers factor in Bitcoin trading. The specially issued token, most active on Bitfinex, has also been sent around exchanges worldwide, as a way to avoid handling cash and complying with expensive regulations.

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But lately, any attacks or criticism on the Tethers system, which seems to be injecting liquidity into the markets without real inflows of fiat currency. So when the news of the subpoena surfaced, the fears that the Tethers system could collapse were renewed.

This sent the Bitcoin price reeling, and later recovering above $10,000. At the moment, the trading of BTC against USDT is around 10% of total volumes, and on some days, USDT trading exceeds the Euro and Korean Won pairs.

Some believe the Bitfinex order books add to the problem, with spoof orders that are pulled. It is also possible that Tethers are used to buy Bitcoin, which may then be converted to US dollars, and in the end small-scale, unaware investors would be left holding the toxic Tethers in case of a collapse.

And while the subpoenas served may have turned out to be a technicality, the news certainly caused jitters. The markets, having even more newcomers, are extremely jittery, especially after the collapse of BitConnect, after months of warnings being dismissed.

This time, the worries are that with no new Tethers coming up to support Bitcoin, the price may stagnate and unravel, never achieving the promised heights. While the value of Tethers is low compared to the market capitalization of Bitcoin, it is still a significant part of the trading, and may have served to boost the price in the bewildering daily gains of the past months.

Toward the end of January, the Tether company also stated it would part ways with Friedman LLP, the auditor who was tasked with ensuring USDT was backed by actual currency. No official audit has been produced, despite the many demands from the crypto community.

In a mystifying statement, the company said Friedman LLP was taking a too-detailed view of the matter:

"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. As Tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success."

But even now, with 1.6 billion Tethers in circulation, the risk has not been removed from the markets.