Bitcoin

A worrying analysis suggests Bitcoin’s crashing price could fall lower. Tether, a crypto-token tied to the value of a U.S. dollar, is revealed in a new report as having a strong relationship to the price of bitcoin. What’s worse, the current slide in the value of bitcoin seems tied to news around the controversial token.

“If there is questionable activity, the author believes a 30-80 percent reduction in BTC price could be forecast,” the report claims in its analysis. The report, released January 24, was written under a pseudonymous hash as the author was concerned about public response. If accurate, though, it would spell bad news for Bitcoin, which has already slumped to less than half its December high value to reach $7,183.

The analysis looks at Tether, which launched in 2015. Unlike cryptocurrencies that fluctuate in price, these are tokens backed by real currency held in reserve such that one token is always worth one U.S. dollar. It brings the benefits of the blockchain ledger and secure transactions to fiat currency, avoiding the spikes and falls from the regular markets. As there are 2.2 billion tether tokens out there, it’s assumed there is $2.2 billion tucked away in Tether’s stores.

Tether's mobile app in action.
Tether's mobile app in action.

However, a number of questions linger about Tether. Adding more Tether tokens to the mix seems tied to a rising price, with 48.8 percent of Bitcoin’s rises occuring in the two-hour periods after 91 Tether grants reached the Bitfinex exchange.

“Author’s opinion - it is highly unlikely that Tether is growing through any organic business process, rather that they are printing in response to market conditions,” the report claims.

The two businesses share a CEO, but little else is known. A report last week claimed the U.S. Commodity Futures Trading Commission sent subpoenas to the two firms after questions arose about the amount Tether really had on file.

The issue is whether Tether was simply printing tokens when Bitcoin was falling to move the price. The report recommends an independent audit into Tether’s operations, confirming that each token was backed by a dollar throughout history. A firm called Friedman LLP was meant to conduct such an audit, but that relationship now appears dissolved and the firm did not respond to a request for comment.

However, some question whether a Tether crash would really hit the markets as hard as suggested. Chris Burniske, partner at Placeholder VC, noted on Twitter than even the $2.2 billion only accounts for 1.3 percent of Bitcoin’s total value and the Tether news is likely considered in Bitcoin’s already falling price, meaning this wouldn’t necessarily be a further 30 to 80 percent drop. If this analysis is wrong, though, the crash could prove ugly.


If you liked this article, check out this video about how Ripple works.

Photos via Tether, Bitcoin