what is tether logo

Stablecoin Tether is supposed to remain “pegged” to the dollar to provide traders a stable cryptocurrency. According to the company behind Tether, every token is backed by a real dollar, held in a bank account.

“Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD.”

But Tether made headlines earlier this year when concerns arose over the legitimacy of these claims. Despite promising regular audits, no independent audit has been undertaken to prove the underlying funds. Researchers at Texas University looked into it and concluded that tether backing is “incomplete.”

Background reading: Everything you need to know about Tether (the controversial stablecoin)

“Bank statements reviewed by Bloomberg News suggest those fears may be unfounded.”

Bloomberg has reportedly seen statements spanning four separate months that confirm tether is fully backed. The documents were revealed by someone with access to company records, and confirmed by government officials. 

One statement confirmed that Tether held $2.2 million in its bank account at Puerto Rico’s Noble Bank Ltd. on January 31. At the time, there were 2.195 billion tether coins in circulation.

Statements in September and October also confirm that enough funds existed to back the circulation.

Not a complete account of Tether’s finances

Bloomberg admits the documents are not a complete account of Tether’s finances. For example, they don’t shine any light on where the funds originated from, only that they flow between Tether and crypto exchange Bitfinex. Tether and Bitfinex share an executive team.

Although the investigation may put some accusations to rest, Tether’s lack of transparency will continue to worry some traders.

Since the concerns dominated headlines this year, alternative stable coins have gained traction including Dai, Paxos Standard and Gemini Dollar.

Further reading: What are stablecoins? And how can we make them more… stable?

bitcoin price rise

The price of bitcoin spiked more than 10% on Monday morning. Ethereum, XRP and bitcoin cash also exploded to double-digit gains before settling later in the day.

Bitcoin Price Teases $7,000

According to CoinMarketCap, bitcoin’s price spike hit $6,965 before dropping back to $6,660. However, Bitfinex – a cryptocurrency exchange in Hong Kong – charted bitcoin at $7,788 at its highest point.

So, what accounted for this rapid price rise?

Huge Sell-off in Tether

Bitcoin’s surge was triggered by traders selling tether – a “stablecoin” which is pegged to the US dollar.

Tether is typically used to trade cryptocurrencies against the dollar without having to use fiat currency itself. Tether is also used to keep money “on the sidelines” before entering a particular trade. Since it’s pegged to the US dollar, it is a relatively stable asset.

A reported 20% of all crypto trades are made using tether.

What Caused the Tether Sell-off?

According to Bloomberg, the implosion appears to have been caused by renewed rumors of insolvency at crypto exchange Bitfinex. Bitfinex has been plagued by speculation over its financial health and banking relationships.

That’s a problem for tether because Bitfinex and tether share a CEO.

The nerves about Bitfinex’s financial health appear to have spilled over into concerns over tether.

In an attempt to downplay concerns, Bitfinex was quick to point out that “all cryptocurrency and fiat withdrawals are, and have been, processing as usual without the slightest interference.”

FALSE RUMOR: Binance is Delisting Tether

One rumor circulating Twitter on Monday morning hinted that Binance – the world’s largest crypto-to-crypto exchange – was set to delist tether. It was fueled by an image that reportedly showed an email from Binance announcing the forthcoming delisting.

Binance CEO, however, confirmed it was a faked Photoshop image. While this may have initially caused a panic sell-off in tether, it should have no further impact on the price.

For now, the price of bitcoin has dropped from its spike to a stable $6,640.