Following BTC’s recent decline, the U.S Department of Justice has reportedly opened a probe into whether Tether has been used in any way to manipulate market prices at the highest point in the coin’s history.
Bitcoin has slumped more than 70% since the turn of the year, and Bloomberg reports that Federal prosecutors are digging up a past scandal alleging that Tether and crypto exchange Bitfinex collided to move prices up.
Citing three anonymous sources familiar with the matter, Bloomberg says that the latest probe adds to a previous inquiry into possible misconduct sent to Tether LTD and Bitfinex earlier this year by the Commodity Futures and Trading Commission (CFTC).
The current investigations are being carried out by the Justice Department and the CFTC, the report adds.
Until now, there have been several studies carried to prove both how Tether could be used to manipulate Bitcoin prices and how it cannot be used. Notably, crypto enthusiast Mike Novogratz argued in favor of the stable coin, stating that the fact that Tether Ltd. was able to redeem $1 billion tokens after the coin slumped to less than $1 is evidence that it is fully backed by USD.
Deciphering The Tether USDT Controversy
Tether LTD issues a stable coin with the ticker USDT which it claims is backed 1:1 by the US Dollar. A Hong-Kong based crypto exchange, Bitfinex is the dominant issuer of USDT since most of the stablecoin’s circulating supply enter and exit through the platform. While the price of USDT is less than $1 in the global crypto market, it still trades 1:1 on Bitfinex.
Bitfinex and USDT also share the same management team which makes the claim of manipulation possible.
Tether says that it each unit of their stable coin is backed by $1 and stored in a company bank account it operates at Deltac Bank. However, critics suggest that the company also owns a Reserve Bank from which it issues Tethers to stabilize the price of BTC and afterward sell BTC to fill up the spent reserves.
It is likely on this ground that the Department of Justice is probing Tether even though their banking partners recently published a report to show that the company has enough USD to back the total number of USDT in circulation.
Only time will tell what the result of the latest investigation will be and whether USDT was used to pump the price of Bitcoin in 2017.
Meanwhile, at the time of writing this report, the value of USDT was still less than $1 ($0.984255).