According to a Bloomberg article published Jan. 30, 2018, the U.S. Commodity Futures Trading Commission (CFTC) has issued subpoenas to Bitfinex, one of the world's largest cryptocurrency exchanges, and Tether, an affiliated company offering what it claims is a fiat-backed cryptocurrency. Bloomberg's article cites an unnamed person familiar with the matter and does not provide detail as to what information the CFTC is seeking. Tether bills itself as "always backed 1-to-1, by traditional currency held in our reserves"; each tether issued, in other words, is supposedly guaranteed by a deposit of one U.S. dollar. Tether claims that its "reserve holdings are published daily and subject to frequent professional audits," but no such audit has been forthcoming, and the company severed ties with its auditing firm, Friedman LLP, on Monday.

"Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether," the company said in a statement, "it became clear that an audit would be unattainable in a reasonable timeframe."

Tether's market cap is over $2.2 billion at the time of writing. The last publicly available document detailing the company's fiat deposits is from late September, when its market cap was under $500 million. The names of the banks where Tether's funds are held were redacted in that document, and Friedman wrote that it "did not evaluate the terms of the above bank accounts and makes no representations about the Client's ability to access funds form the accounts or whether the funds are committed for purposes other than Tether token redemptions."

Vindicated?

Bitfinex and Tether have long been targets for criticism, in particular by two anonymous online commentators, Bitfinex'ed (presumably a play on "Goxed," recalling the disastrous collapse of MtGox) and 32E3690D50B3B477DF7841212D4BB938DC9CDB50307618328E7F8B53F37CC1E2 (the author claims this is a hash of their name, meaning they could provably reveal their identity at a later date). 

The latter argues, based on statistical evidence, that Tether is "printing in response to market conditions" rather than growing their business organically. They also allege that Tether is being printed in order to manipulate the price of bitcoin: new tether is released – without the claimed backing – when bitcoin's price falls. The author identifies 91 such incidents of and estimates that perhaps 48.8% of bitcoin's rise from March 29, 2017 to Jan. 4, 2018 occurred within the two hour periods following new tether issuance.

"If there is questionable activity," the author concludes, "a 30-80% reduction in BTC price could be forecast." 

Such internet sleuthing should not be taken at face value, particularly when offered anonymously. Alongside the many wildly optimistic, deliriously bullish and plain too-good-to-be-true claims clogging the nascent world of cryptocurrencies, there is ample "FUD" (fear, uncertainty and doubt), which need not necessarily have any more evidence to back it up.

Nameless internet investigators have proven their worth during past cryptocurrency blowups, however. Recent analysis of trading on MtGox has largely borne out theories first posted anonymously to reddit and pseudonymously to a WordPress blog in early 2014. (See, Fraudulent Trading Drove Bitcoin's $150-to-$1,000 Rise in 2013: Paper.)

Nor has the only criticism of Tether come from anonymous sources. Nicholas Weaver, senior researcher at Berkeley's International Computer Science Institute, tweeted that without inflows of "$100M/day of fake $s in the form of Tethers," there will be "a true bloodbath on the cryptocurrency prices. Good." 

Meanwhile, NYU economist Nouriel Roubini has been maligning Tether on social media.

They refused as the Tether/USDT peg of 1:1 to the US$ is the mother of all scams/frauds. And now its pricing below parity shows it is on the way to collapse. And it will take down with it also the Bitcoin bubble https://t.co/eUXdm1JYjm

— Nouriel Roubini (@Nouriel) January 28, 2018

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