Tether and Bitfinex Under Investigation by the U.S. Justice Department

By Debarun Gupta

The bitcoin rally that caused prices to reach $20,000 has come under a microscope as the US Justice Department is currently investigating the event for possible evidence of market manipulation.

According to a report by Bloomberg News, federal prosecutors are taking a closer look at Bitcoin, Tether, and its exchange Bitfinex for possibilities of a potential criminal conspiracy. The exchange has a stake in the stablecoin.

Tether’s claim of its ability to be exchanged 1:1 with US Dollars has come under doubt ever since its price plummeted to 0.89 cents earlier this year, but later rebounded. This follows the trend of a massive price drop in Bitcoin, drawing skepticism from observers.

Historically, Tether Ltd., a Hong-Kong based company that created the coin failed to provide a promised audit showing adequate reserves backing Tether. Amidst talk of manipulating prices, rumors of insolvency and its unclear relationship with the Bitfinex exchange, the company has been the subject of significant controversy. Additionally, it was reported that dollar transfers for the company were being handled by Noble Bank in Puerto Rico with Bank of New York Mellon Corporation as its custodian. In October of 2018, Noble Bank put itself up for sale and cut off all ties with the company and the exchange. Although lacking banking connections and exchange abilities now, Bitfinex has still denied that it is insolvent.

To add to the company’s long list of controversies, almost $31 million of USDT tokens were stolen from Tether in November 2017 and Tether was forced to temporarily suspend trading to update its security as a direct consequence.

If Tether is legitimate, the exchange between Bitcoin and Tether is valid. But if the investigation brings light on malpractice, it would be evident that bitcoin is just being acquired and inflated. Tether Ltd. and Bitfinex both were served subpoenas by the US Commodity Futures Trading Commision in January this year, and both the government bodies are currently coordinating in the investigation.

It is unclear whether the Justice Department is only looking at why most of Tether enters the market exclusively through Bitfinex and how it issues its tokens, or if this is part of a more significant inquiry into the dealings of the exchange’s executives.

The CEO of Tether Ltd. and Bitfinex, JL van der Velde has vehemently denied all allegations and lawyers representing the company have not yet commented on the issue.