Another outside observer of the controversial tether cryptocurrency is warning about the dangers it presents for the uninterrupted operation of USDT exchanges. Weiss Ratings is seeking to educate investors on the systematic risk tether introduces to the ecosystem.
Weiss Ratings, an independent U.S. agency which recently published letter grades for cryptocurrencies, has issued an alert to investors about the dangers of tether (USDT). It highlights common fears about the stablecoin which is claimed to be fully covered by U.S. dollar reserves.
“The big issue: There’s never been an audit, and the folks behind Tether has been quite shady when asked. They have continuously claimed their tokens are backed 100% by actual dollars, yet they have failed to present any evidence to support this claim. On social media, there appears to be consensus that what Tether is actually doing is running a fractional reserve system. In other words, most observers claim they DO NOT have the dollars to back up all those Tether coins. I tend to agree. It’s just too suspicious,” says Weiss analyst Juan M. Villaverde.
What Happens When the Feds Stop USDT Printing?
Weiss explains how the importance of USDT to the entire ecosystem is that many non-fiat exchanges (like Binance or Okex) use it as a proxy for real dollars in trading. Because of this, it is the third most traded cryptocurrency and the only one with trading volumes that regularly exceed its market cap. These exchanges are thus dependent on tether for liquidity and put investors at risk if any government decides to pull the plug out of its printers. Some consider this to be a likely scenario under U.S. law.
“The consequences of hanky-panky could be far-reaching. What happens if Tether does turn out to be fraudulent? Or what happens if a major government determines that cryptocurrencies like Tether are being used by exchanges to avoid regulations? What if this large source of liquidity suddenly evaporates?” Villaverde asks. “Conceivably, it could cause exchange failures. It could drive investors to liquidate their positions, causing sharp declines in market prices.”
Should cryptocurrency investors worry about the continued liquidity of USDT exchanges? Tell us what you think in the comments section below.
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Rarely a week passes when Tether, the company responsible for issuing the USD-pegged cryptocurrency of the same, isn’t in the news. In the last 24 hours, two separate reports into the status of Tether and its USDT tokens have been published, one examining its legal status and the other exploring its blockchain. Meanwhile, Upbit exchange has reassured its customers that in the event of USDT being withdrawn, it will guarantee all deposits in USD.
Nicholas Weaver is a computer security researcher at the International Computer Science Institute in Berkeley. On Thursday, he published a piece in Lawfareblog giving his thoughts on the likelihood of Tether being targeted by U.S. regulators. It was recently revealed that Tether was subpoenaed in December amidst mounting speculation as to the company’s operations. Subpoenas of companies that have a presence on U.S. soil are not unusual, and are not evidence in themselves of an imminent shutdown by financial regulators. But with no official comment from Tether or U.S. regulators, onlookers have been left wondering.
In the opinion of Nicholas Weaver, “Because of their use in criminal activity, most cryptocurrency exchanges are cut off from the conventional banking system. Those that have access are required to generate IRS reports on transactions of a certain size and report suspicious activities. But substantially more could be done to disrupt unregulated exchanges – and the token Tether should be the government’s next target.”
In particular, U.S. regulators should investigate those behind Tether for possible violations of Patriot Act provisions on money laundering and other financial fraud laws. Prosecution is likely to inhibit criminal scheming and to substantially disrupt the exchanges that rely on Tether to function.
Weaver goes on to write: “Tether appears likely to be a scheme that facilitates money laundering or to be a “wildcat bank,” one that prints banknotes that aren’t actually backed. In both cases the U.S. government can, and should, intervene.” The comparison he draws is with Liberty Reserve, an early experiment with self-issued currency without government approval. It didn’t end well. By the time U.S. officials swooped on the Costa Rica based company, alleging money laundering and providing unlicensed financial services, it had amassed over one million users. Many of them lost everything when the company was shuttered in 2013.
The Loss of Liberty
Liberty Reserve’s achilles heel was that it was centralized, and thus had a single point of failure. When Satoshi Nakamoto created Bitcoin, three years after Liberty launched, he didn’t make the same mistake. Tether, as an organization dependant upon formal banking arrangements of some kind – even if the precise nature of those arrangements is murky – doesn’t have that luxury. It is a sitting duck for U.S. regulators should they decide to come after the company for money laundering – a charge that can be slapped on any financial company, regardless of culpability – or for forgery-related charges on account of ‘impersonating’ the U.S dollar.
Nicholas Weaver continues: “Tether isn’t just theoretically useful for money laundering; its use as a reserve currency for unbanked exchanges shows its value for laundering funds. Tether is used to conduct electronic financial transactions that bypass the oversight inherent in the banking system. Consider also that only one cryptocurrency exchange with banking, Kraken, accepts Tether for trading at all and that the only thing Tethers can be sold for on that exchange is U.S. dollars. On Kraken, one can’t use Tethers to directly buy different cryptocurrencies.”
Exploring the Tether Ledger
In his daming opinion piece on Tether, Weaver also writes that “While Liberty Reserve used a private ledger to track balances, Tether uses a public pseudonymous ledger. This sort of ledger means that intermediary holders are not known to Tether, only to those who redeem Tethers. If anything, such willful ignorance suggests more, not less, criminal culpability.” That ledger came in for added attention on Thursday in a piece published by data researcher Alex Vikati.
Together with her partner Edwin Ong, she took a closer look at activity on the Omni blockchain that Tether uses. Vikati confirms that Tether has issued $2.2 billion worth of USDT plus another $60 million in the form of USDT ERC20 tokens to date. The report examines the biggest senders of tether, which are predictably exchanges such as Poloniex and Bitfinex. She goes on to write:
In Tether’s case, the top 200 addresses out of Tether’s nearly 100K active addresses hold over 2B USDT. Yes, the top 0.2% owns over 90% of the token’s total supply. This is more than double BTC’s wealth concentration.
When Tether’s owners founded the company in 2015, they could never had envisaged that, three years later, its every move would be subject to such intense scrutiny from legal experts, regulators, and data researchers.
Do you think U.S. regulators have Tether in their sights? Let us know in the comments section below.
Images courtesy of Shutterstock, Twitter, and Alex Vikati.
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Cryptocurrency markets are starting to slowly inch back upwards after many digital assets lost roughly 40-70 percent of the values they held two months ago. Bitcoin core markets (BTC/USD) reached a low of $5,920 this past Monday, but as the weekend approaches the price has regained strength hovering around $8,250-8,450. Moreover, the price of bitcoin cash (BCH) has jumped considerably, gaining over 23 percent today with an added $1.4Bn worth of trade volume combined to the intraday.
Some individuals speculate the bearish cryptocurrency dumps that plagued markets for six weeks seem to be over. Most digital assets saw some excellent percentage gains yesterday on February 8, but during overnight trading sessions there were some considerable highs and lows. Currently, average BTC/USD prices are holding above the $8K price region and trade volume is roughly around $10.2Bn over the past 24-hours. The top five exchanges trading the most BTC today include Okex, Bitfinex, GDAX, Upbit, and Bitflyer. The Hong Kong-based exchange Binance has been having upgrade issues and had to stop trading until the platform is fixed. At the company’s current rate, they estimate trading activities will resume at 2018/02/09 4 am UTC.
Right now the Japanese yen is the most traded currency with BTC capturing 48 percent of the day’s trade volume. This is followed by the U.S. dollar (31%), tether (USDT 7.5%), the euro (5.8%) and the Korean won (3%). Today the most traded cryptocurrencies swapped for BTC or vice versa include ETH, BCH, and XRP. Bitcoin core’s market capitalization dominates by 35 percent ($141Bn) of the $394 billion cryptocurrency market cap.
BTC/USD Technical Indicators
Looking at charts shows a considerable bounce off the $5,900 resistance point this past Monday. A well-defined uptrend has been forming on the 4-hour through 3-day charts. During last night’s trading sessions the weekly charts finally changed to a green spinner after a quick dip at 7:30 pm EDT. Additionally, the overnight push brought the 100 Simple Moving Average (SMA) above the longer term 200 SMA. The gap has continued to spread, and this indicates the path to the upside is still very much in the cards.
The Macd is moving northbound, but the Relative Strength Index (RSI) and Stochastic are dipping showing temporary oversold conditions. Order books show there’s a good amount of resistance towards the upside between $8,750 and $9K. If bulls can manage to break this particular region by at least tomorrow that would likely be a decent ‘bullish indicator.’ On the back side, foundations are quite robust which means sell-offs will have a hard time moving faster unless key price zones such as $8,100 and $7,700 are broken.
Bitcoin Cash Jumps Over 20%
Bitcoin cash markets have seen a considerable spike today, gaining 23 percent during the early morning trading sessions. The price has dipped a bit but is still above the 20 percentile region with a price of $1,180 per BCH this Thursday. BCH markets had seen about $2Bn worth of trade volume over the past 24 hours when yesterday the volume was a mere $600 million. The top five exchanges trading the most BCH today include Okex, Upbit, Hitbtc, Bitfinex, and Bithumb. The most traded currencies with bitcoin cash are BTC (67%), USD (13%), KRW (8%), USDT (7%), and the euro (1.5%).
BCH/USD Technical Indicators
BCH charts have followed a similar pattern with BTC markets and declined a touch more during the dip. However, today’s trading sessions are a different story as the extra decline has been erased. Other differences show the long-term 200 SMA is slightly above the 100 SMA, which means the path to the upside has touched significant resistance.
Macd is heading down slowly, and RSI/Stochastic oscillators are showing oversold conditions presently. Order books reveal there are big sell walls above the $1,275, and if momentum can clear these orders then resistance will be a bit lighter. On the back side from $1,100 to 1,000 there is plenty of support for the next 4-6 hours unless a rapid sell-off takes place. If BCH bulls are persistent, then $1,300-1,350 price levels are attainable in the short term.
Overall the cryptocurrency community seems way more optimistic than a few days prior. Traders are still skeptical and believe markets are not entirely ‘safe’ from bears until $9K or $10K prices are obtained, signaling a good bull charge. The U.S. congressional testimonies from the SEC and CFTC showed some positivity that regulators would not try and stifle innovation. Further regulatory ‘crack down news,’ aka FUD from Asia, has been settling down some as well. According to Coinmarketcap, most of the top ten cryptos are following the same trend upwards but some tokens are having a difficult time recovering. It’s likely the current uptrends will be slower with a few scalps in between, but for now things look far better than they did days prior.
Where do you see the price of BTC and other digital assets heading from here? Do you think cryptocurrencies will see more gains? Let us know in the comments below.
Disclaimer: Price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
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