Given the volatility of Bitcoin in recent months, the appeal of a cryptocurrency dubbed a “stable coin” is understandable. That was the thinking behind Tether when it was first launched in 2015. Yet the reliability of the digital currency is now being questioned, raising fears it could severely affect the price of Bitcoin and impact many exchanges.The announcement that the US Commodity Futures Trading Commission sent subpoenas on December 6 to virtual-currency venue Bitfinex and Tether rattled investors, sending the bitcoin price down to two-month lows.
Tether, also known as USDT, is a cryptocurrency that started trading three years ago. The company behind it claims it is pegged to the US dollar. As such, it is intended to have the stability of the dollar but the ability to be used as a digital currency. It means investors can move different cryptocurrencies across exchanges without ever needing to convert the digital assets into dollars – ensuring transactions are cheap and fast. And because many exchanges face problems dealing with traditional banks due to their wariness of crypto businesses, Tether is meant to offer a stable alternative. It is therefore widely used as a dollar substitute on Bitcoin-buying websites, such as Bitfinex, and Tether Limited claims it has the dollar equivalent of all its currency in reserves at all times. Sceptics say it has not provided any evidence to confirm this and its accounts have not been audited.Ronn Torossian, a spokesman for Tether, said in December that a full audit would be released “as soon as possible”. An interim report in September, from auditor Friedman LLP, found the company had $442.9 million of cash as of September 15 to “fully back” the tether tokens. The name’s bank is blacked out in the publicly available version of the document. A lawyer who specialises in digital currency told the New York Times that the document was worded in such a way that it did not prove that the Tether coins are backed by dollars.