Tether, a cryptocurrency that claims to be backed by hard cash, is in the spotlight after reports that the Commodity Futures Trading Commission last month subpoenaed documents from the digital-asset platform. Tether and its sister company Bitfinex have been raising eyebrows within the digital-currency community, as critics question the accuracy behind assertions that every tether is supported by actual bank reserves.
In recent months, the issuance of tether coins has caught the eye of market participants: in January, Tether Limited printed 850 million tethers, often referred to as USDT, but so far it has yet to provide evidence that $850 million is in reserve to support that offering. According to Tether, its assets total $2.3 billion with as many tokens trading on exchanges such as Bitfinex and Kraken.
Most recently, Tether’s relationship with auditor Friedman LLP has dissolved according to a Saturday report from research and news site CoinDesk, intensifying concerns about the platform’s transparency.
Friedman LLP in September of 2017 issued a memorandum to the Tether Limited management, according to which Tether had about $442 million in reserves as of March 31, 2017, which suggests that in about 10 months, Tether Limited was able to grow assets more than fivefold to roughly $2.3 billion
Friedman LLP didn’t respond to calls or emails for comment.
A spokesman for Bitfinex declined to respond to an email list of questions from MarketWatch about the company’s operation. Bitfinex is one of the larger cryptocurrency exchanges and shares many executives with Tether Limited.
Publicly, Tether has denied allegations that its digital asset isn’t pegged to fiat currencies and said that “any suggestion to the contrary is uninformed and baseless.”
Tether coins can be purchased on Bitfinex, based in the British Virgin Islands, and were designed to allow traders to cash in and out of bitcoin quickly by transferring proceeds to other exchanges or digital wallets, bypassing the often onerous and lengthy process of converting the sums in and out of fiat currencies via the regular banking system.
Prominent economist Nouriel Roubini is the latest to cast doubts about Tethers reserves.
“Only a full audit can show whether they truly have $2.3 billion of reserves backing all the tokens,” Roubini told MarketWatch via email.
The most controversial allegation against Tether is that its coins are digitally minted to purchase bitcoin BTCUSD, +0.05% on the Bitfinex exchange, which in turn drives up the price in the world’s No. 1 crypto asset, drawing business as the cyber unit climbs.
Sarit Markovich, professor at Northwestern University’s Kellogg School of Management, wrote on Fortune last month: “If Bitfinex isn’t acting out of self-interest, it is in the exchange’s best interest to explain its actions fully: why new [tether] are being printed, what they’re backed up by, and the like.
“Vagueness raises justifiable suspicion, but only on the part of those who understand the market dynamics at play,” he said.
Bitcoin soared nearly 20-fold in 2017, peaking in mid-December at nearly $20,000. But over the past six weeks the price has plunged by nearly 50% to below $10,000. Meanwhile, a single tether was valued at 98 cents, down 0.9%, late Tuesday in New York, with a total market value of $2.2 billion, according to CoinMarketCap.com.