Bitcoin (BTC) broke through the $60,000 mark yesterday with apparent ease despite the realization that Tether has lied to the market about their stablecoin USDT. The U.S. CFTC issued an order simultaneously filing and settling charges against Tether Holdings Limited, Tether Limited, Tether Operations Limited, and Tether International Limited (d/b/a Tether) for making untrue or misleading statements and omissions of material fact in connection with USDT. Some experts believe that this bull leg could take BTC to $100,000 by the end of the year.
The False Narrative & Liquidity Crisis
According to the CFTC order, Tether, since its launch in 2014, has represented that the tether token is a stablecoin with its value pegged to fiat currency and 100% backed by corresponding fiat assets, including U.S. dollars and euros. However, from at least June 1, 2016, to February 25, 2019, Tether falsely claimed that it maintained sufficient U.S. dollar reserves to back every USDT in circulation with the “equivalent amount of corresponding fiat currency” held by Tether and “safely deposited” in Tether’s bank accounts. However, Tether reserves were not “fully-backed” the majority of the time. Tether failed to disclose that it included unsecured receivables and non-fiat assets in its reserves. Tether falsely represented that it would undergo routine, professional audits to demonstrate that it maintained “100% reserves at all times” even though Tether reserves were not audited.
As found in the order, Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018. Instead of holding all USDT token reserves in U.S. dollars as represented, Tether relied upon unregulated entities and certain 3rd-parties to hold funds comprising the reserves; comingled reserve funds with Bitfinex’s operational and customer funds; and held reserves in non-fiat financial products.
The Tether and Bitfinex groups are interconnected. At least, that is the prevailing opinion in the market. Allegedly, Tether and Bitfinex’s combined assets included funds held by 3rd-parties, including at least 29 arrangements that were not documented through any agreement or contract, and that Tether transferred Tether reserve funds to Bitfinex, including when Bitfinex needed help responding to a “liquidity crisis.”
The Penalties
The order requires Tether to pay a civil monetary penalty of $41 million and to cease and desist from any further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged. The order requires Bitfinex to pay a $1.5 million civil monetary penalty. It also prohibits Bitfinex from further violations of the CEA. Moreover, it requires Bitfinex to implement and maintain additional systems reasonably designed to prevent unlawful retail commodity transactions.
