Bitcoin, that in last week’s market chaos experienced a rapid drop in value, with 5% falling off its price in a matter of minutes on Thursday, has rallied strongly on Monday.
Nearly all major crypto-currencies had their first major sell-offs in months last week but on Monday saw sharp rises, with Bitcoin jumping in some markets by more than 10% to climb back over the $7,000 point.
The exception, and indeed the cause, of the crypto market rise was the Tether token that continues to witness a wholesale investor exodus. This so-called stablecoin, that claims to be backed to the US dollar and says it holds $1 in reserve for every token it issues, has faced widespread criticism since 2017, essentially over its inability to produce conclusive evidence to prove its reserve claims.
While a lot of traders have over the last few months chosen to ignore these concerns, allowing Tether to take about 20% of the global crypto transaction market, making it the second most traded crypto after Bitcoin, “faith in Tether,” reported Bloomberg, “abruptly diminished on Monday amid renewed speculation over the financial health and banking relationships of Bitfinex, a crypto exchange that shares a chief executive officer with Tether’s issuer.”
Bitfinex was forced to issue a statement last week denying that it was insolvent and on Monday put out a statement saying it temporarily suspended fiat currency deposits last week only in order to deal with “processing complications.”
“We are working to implement a new and increasingly robust fiat deposit system to be available in the next 24 hours, by Tuesday, October 16, 2018,” said Bitfinex “to allow for the efficient processing of fiat deposits. Until then, we apologize for the inconvenience of the situation.”
Last week, Bitfinex was forced to make another announcement denying it was insolvent. “As one of only a very few exchanges operating since 2013, with a small team and low operating costs, we do not entirely understand the arguments that purport to show us to be insolvent without providing any explanation about why,” said the exchange.
In June, a report from two University of Texas Department of Finance academics, John Griffin and Amin Shams, investigated “whether Tether, a digital currency pegged to US dollars, influences Bitcoin and other crypto-currency prices during the recent boom.”
The Griffin and Shams report claimed that major Bitcoin purchases made with Tether followed “market downturns and result in sizable increases in Bitcoin prices.”
In December, the US Commodity Futures Trading Commission reportedly sent subpoenas to both Bitfinex and Tether, although neither party would confirm or deny any details related to this, while in April Polish authorities reported that a seizure of US$370 million from two companies suspected of money laundering for Colombian drug cartels had links to Bitfinex.
The Tether token has been used by global crypto markets as a US currency substitute but its slip on Monday has, according to Bloomberg, seen it trade as low as 85 cents. If the slide continues, it will be increasingly hard for Tether to maintain its pledge of redeeming its coins for $1 each.