A Washington-based law firm said today that the cryptocurrency Tether (USDT), which as its name suggests is pegged to the value of the U.S. dollar, holds enough U.S. dollar reserves to back all of its coins in circulation.
The news couldn’t come at a better time. Just last week a University of Texas research paper was published that claimed Tether was being used to manipulate the price of Bitcoin and other coins throughout the market’s bull run that peaked last December.
Tether’s Dollar Reserves
The report, which was authored by Freeh, Sporkin & Sullivan LLP (a firm co-founded by former FBI director Louis J. Freeh) is welcome news for the Tether community, as in the past critics have raised concerns over whether it actually does hold $1 in reserve for every Tether token in circulation, according to Reuters.
To reach their conclusions, FSS said that it conducted ‘comprehensive examinations and telephone interviews of key personnel at Tether and its banks.’ The firm also reviewed account statements provided by the banks, which indicated that the company had approximately $2.55 billion in its accounts on June 1.
The names of Tether’s banking partners were not disclosed in the report, though rumors have circulated in the past, some claiming a connection between Tether and a bank in Puerto Rico.
“FSS is confident that Tether’s unencumbered assets exceed the balance of fully-backed USD Tethers in circulation as of June 1st, 2018,” the report read.
Hinting at potential regulatory concerns, FSS also clarified that the report was not a full audit of Tether, and a review of the numbers was as far to say:
“FSS did not, as part of the Engagement, arrive at any conclusions as to Tether’s compliance with applicable laws and regulations in any jurisdiction.”
This clarification is important considering that FSS co-founder Eugene Sullivan is an advisory board member of one of Tether’s banks, according to the report.
Also of note is that Tether shares investors and management with Bitfinex, one of the world’s largest cryptocurrency exchanges. In December, the U.S. Commodity Future Trading Commissions (CFTC) sent a subpoena to both Tether and Bitfinex. Stuart Hoegner, Bitfinex’s general council, declined to comment on whether Tether or Bitfinex were under investigation by the CFTC or the Department of Justice, and also brushed of the claims of market manipulation:
“These allegations of manipulation are … just completely misplaced,” Hoegner said in an interview.
Research Claims Bitcoin Price Manipulated
Less than a week ago, research out of the University of Texas alleged that the price of Bitcoin and other cryptocurrencies was manipulated using Bitfinex’s Tether coin throughout the bull run towards the end of 2017.
In the paper, authors analyzed the traffic of cryptocurrencies on the Bitfinex exchange and found a correlation between price slumps in Bitcoin and other coins. Additionally, it found instances when Tether was issued and sold by the owners of the exchange. The paper alleges that these instances may account for as much as 50% of the price increases of Bitcoin, and 64% of others coins trading in the top 10.
One of the authors, Professor John Griffin, emphasized that the pattern of transactions that he and his research partner found played a significant role in last year’s unprecedented price gains in the crypto market. In a recent interview with the New York Times, Griffin reiterated his findings:
“There were obviously tremendous price increases last year, and this paper indicates that manipulation played a large part in those price increases.”