US Regulators Hunting Tether’s Ghost of Christmas Past

The US authorities have opened the probe to investigate whether Tether (USDT) and cryptocurrency exchange Bitfinex were involved in manipulation that could be allegedly responsible for the last year’s jaw-dropping Bitcoin (BTC) bull run.

Ironically enough, the Tether probe was initiated against the backdrop of a devastating Bitcoin downturn that recently resulted in the cryptocurrency’s plunge to the lowest levels in more than a year. Yet, its inexplicable rally that peaked last Christmas still seems to be a pain in the neck to the US regulators who suspect that recent crypto boom was fueled intentionally and Bitcoin prices were artificially inflated. Therefore, they are keen to look into the matter and punish offenders.

The U.S. Justice Department is investigating whether last year’s epic Bitcoin rally was fueled in part by manipulation, with traders driving it up with Tether https://t.co/QLXJU60Pfd

— Bloomberg Crypto (@crypto) November 20, 2018

The Circle is Shrinking

It is fair to say this is not the first move by the authorities. In fact, the DoJ and Commodity Futures Trading Commission (CFTC) together launched a joint criminal probe into alleged crypto market price manipulation in May. Now, they are increasingly focusing on the main suspects — popular yet rather controversial stablecoin Tether and one of the world’s largest crypto exchanges, Bitfinex, that are not coincidentally run by the same management team.

The federal officials suspect that Bitfinex and Tether Ltd. are responsible for illicit trading practices which resulted in the last year’s crypto assets bubble. Specifically, the investigators believe the manipulation involved the use of Tether to move prices illegally and prop up Bitcoin’s price to record highs over $20,000 in late 2017. The traders allegedly used inside information to buy and sell bitcoins with the stablecoin at well-chosen moments.

The Department of Justice also decided to look more carefully into Tether itself, which is claimed to be backed by US dollars on a one-to-one basis. The authorities got interested in how new coins are issued and why the lion’s share of them is released on Bitfinex.

Usual Suspects

Notably, this is not the first time that Tether and Bitfinex have come into the regulators’ spotlight.

In Dec 2017, the CFTC sent subpoenas to both companies and — although the reasons were not officially disclosed — suggested that move was aimed to study the relationship between Bitfinex and Tether and also to assess whether Tether indeed had enough USD to back the USDT tokens it offered. Later in June, it was reported that the DoJ became suspicious of the possibility of the wash trading of Tether on another big crypto exchange, Kraken.

With the recent move, the two US authorities appear to be coordinating their efforts again within the framework of the investigation into crypto market price manipulation. The DoJ and CFTC declined to share any specific details of the matter. Moreover, they have not pressed any particular formal charges against Tether or Bitfinex. It still remains unclear whether the prosecutors are probing into general illicit activity on Bitfinex, or the specific executives’ involvement.

The crypto community will be casting a wary eye at the investigation and its possible outcomes. In case some formal accusations are eventually made, this will be another crushing blow to the struggling digital assets space and market sentiments.

So, beware of the Ghost of Christmas Past.

Do you believe that the last year’s crypto rally was driven by Tether manipulation? Let us know what you thingk in the comments below.