(October 26): Of all the legal actions that U.S. regulators and prosecutors have brought against crypto companies over the past year, perhaps none more so than the potential crackdown on Tether Holdings that has sapped the digital asset industry. There is nothing that could shake it.
Tether is the issuer of the eponymous token known as USDT, which is designed as a digital replacement for the US dollar and has a market capitalization of approximately US$120 billion (RM521 billion). It ranks as the third largest cryptocurrency by value and is the most traded token every day as it serves as an alternative to the dollar in markets where traders cannot use traditional currencies for trading.
Hilary Allen, a law professor at American University who studies digital assets, said in an interview with the Wall Street Journal earlier Thursday that “Tether is too big to fail for the crypto industry and the larger crypto space.” I think so,” he said. WSJ) reported on the U.S. investigation into the token, which also raised the possibility of sanctions from the U.S. Treasury Department. Allen added: “If Tether went to zero tomorrow, that would be disastrous for the crypto economy.”
Tether CEO Paolo Ardoino immediately went on the defensive after the WSJ report, writing on X: “As I told the WSJ, there is no indication that Tether is under investigation.” . WSJ is rehashing old news. Full stop. ”
So far, as with other times when alarming news about Tether has been reported, there is no sign that Tether will reach zero. The token fell in the report, but only to about 99.69 cents. Other more volatile tokens reacted more strongly to the report, with Bitcoin and Ethereum each falling more than 2%.
Questions and controversy have swirled around the virtual currency for years, including the brainchild of a former child actor famous for playing the character who misses a penalty shot in The Mighty Ducks.
Initially, the investigation focused on whether the company really held enough assets to back the token’s $1 worth, but federal prosecutors in Washington told Tether executives in 2021 that they had no cash back. Bloomberg reported that he was warned that he could be prosecuted for defrauding the bank he used for his transportation. Previously reported. The investigation was then transferred to the U.S. Attorney’s Office in Manhattan, but two years passed without any indictments or other enforcement action.
However, the WSJ reported on Friday that the US has not given up its oversight of Tether. Federal prosecutors in Manhattan are investigating whether the funds were used to finance illegal activities such as drug trafficking, terrorism and hacking, or to launder the proceeds, according to the WSJ. A previous Bloomberg report published in March said that Garantex, the Moscow-based cryptocurrency exchange that has been sanctioned by the US and UK for allegedly enabling financial crimes and illegal transactions in Russia, It said it was investigating transactions worth more than US$20 billion.
A Tether spokesperson said in an emailed statement that the company was not aware of any U.S. investigation into the company.
“These stories are based on pure ranking speculation, even though Tether has confirmed that it is not aware of any such investigation into the company,” the spokesperson said in a statement. The company has “well-documented and extensive dealings with law enforcement to crack down on bad actors” who seek to misuse Tether and other tokens, the statement said.
In addition to the prosecutor’s investigation, the WSJ reports that the Treasury Department is considering sanctions against the Tether token, as it is widely used by individuals and entities sanctioned by the United States. These include Russian arms dealers and Hamas, which the United States has designated as a terrorist group.
If the Treasury Department’s Office of Foreign Assets Control added Tether to its list of specially designated nationals and blocked persons, it “would be devastating,” said John Paul Corning, author of the Moneyness blog. I wrote to X.
And the ripple effects will extend beyond the digital asset market to Cantor Fitzgerald LP, one of Wall Street’s most famous firms. Last year, the company welcomed Tether as a customer and will handle the company’s roughly $100 billion in Treasury securities. He says he owns the stablecoin to support its value.
“Given that Cantor Fitzgerald has to block billions of Tether Treasury bills, it is hard to imagine how the redemption mechanism would work and the peg hold would be maintained.” Corning wrote, referring to the value of one dollar in USDT. Cantor Fitzgerald did not immediately respond to a request for comment on the WSJ report.
In recent months, Kantar CEO Howard Lutnick has raised deep questions about whether Tether really has enough reserves to back up its $1 peg if declining investor confidence triggers a flood of redemptions. has defended the company.
In a speech at the Bitcoin 2024 conference in July, Lutnick said that after several years of due diligence, Tether “had every penny, including Chinese commercial paper, “I had it in what I would call a pretty godforsaken place,” he said. Cantor Fitzgerald agreed to join Tether on the condition that Tether transfer funds to the company to purchase Treasury bills when commercial paper and other investments mature, he said. added.
The relationship with Cantar has made Tether still a notable player in the U.S. bond market, if not quite a whale. Tether is also working to expand its influence beyond the crypto market in other ways.
Bloomberg reported in October that stablecoin issuers were considering lending a portion of their billions of dollars in profits to commodity trading companies, a move that would leave them reliant on traditional banks for credit. It has the potential to shake up the industry. In another effort into the commodity market, Tether has told Turkiye government officials that it will use blockchain technology to create a digital token representing borate minerals, which are primarily used in the production of pottery, detergents, fertilizers, and glass. We recommend that you create a .
Ardoino has also begun pouring billions of dollars and its influence into projects ranging from brain transplant technology to artificial intelligence data centers and wind farms. He is also pushing into the global payments sector, ending the bank’s decades-long dominance as the main conduit for remittances to emerging markets from Venezuela to the Philippines.
Despite the new uncertainty over Tether’s future, some crypto market veterans remain unfazed. After all, so-called FUD (Fear, Uncertainty, Doubt) is nothing new when it comes to this particular cryptocurrency, or indeed any of it.
“Tether FUD has always existed in some form,” said Edward Chin, co-founder of crypto investment firm Parataxis. “I can’t imagine the tether disappearing.”
But for Allen, the American University professor, the deeper intertwining of cryptocurrencies and the traditional financial system, highlighted by the launch of the Spot Bitcoin exchange-traded fund this year, makes Tether’s potential problems clearer for crypto traders. This makes it an issue of concern that transcends disciplines.
“I don’t think we’ve reached the point where the entire financial system could collapse, but we can no longer say for sure,” he said. “I am no longer optimistic that crypto failures will continue to be contained.”
