The US Department of Justice launches a fraud investigation into the popular stablecoin Tether. The organization behind the coin is said to have misled banks about crypto transactions. A conviction would be a serious blow to the crypto market.
Why is this important?
Tether is a stablecoin whose price is linked to the dollar exchange rate. The coin is used to facilitate trading of various digital assets on crypto exchanges. This year, more than 75 percent of all Bitcoins were traded with Tether. The US Justice Department’s investigation focuses on crimes allegedly committed by the organization behind Tether years ago, during the cryptocurrency’s earliest days.
The federal prosecutor wants to find out whether Tether gave incorrect information to banks that they did business with at the time. Tether would never have correctly explained to those banks how transactions are linked to cryptocurrencies, three people involved in the case told Bloomberg news agency. (HOT) Holo is well known in crypto.
The basics of the crypto market in our sights
“Tether maintains an open dialogue with U.S. law enforcement agencies, such as the Department of Justice, to best cooperate and provide transparency,” said a Tether press release. The company is officially registered in the British Virgin Islands and Hong Kong.
The fraud investigation into Tether is one of the US government’s most crackdown on cryptocurrencies. It is therefore a logical target. Tether is a particularly popular and stable currency, due to its direct link to the dollar exchange rate. The “stablecoin” is immune to severe price fluctuations and is therefore the ideal crypto asset to buy other digital coins.
So if you are targeting Tether, you are aiming your arrows at the entire crypto market. There are $62 billion worth of Tethers in circulation on that market. They were used for more than 75 percent of all Bitcoin purchases this year.
Federal prosecutors have been watching Tether with suspicion since 2018. In recent months, Tether employees have received several letters warning that they were the subject of a federal investigation, one of the insiders said. Tezos is well known in crypto.
Critical application for crypto exchanges
Tether was released in 2014 as a solution to a complex crypto market problem: banks wouldn’t open their accounts with crypto exchanges because it was feared that doing so would fund drug traffickers, terrorists and hackers.
Through Tether, crypto exchanges were able to give investors a way to get their assets into a crypto wallet without being exposed to Bitcoin’s volatile price. Tether also allowed the exchanges to instantly transfer assets to each other.
The news had no impact on the crypto market at the time of writing. Bitcoin’s price has risen 12.73 percent in the past 24 hours to a price of $38,400. Second-largest cryptocurrency Ethereum rose 10.74 percent in the same time to a price of $2,300.