New York’s attorney general’s decision on Tether and Bitfinex could dampen the flow of dollars into the Bitcoin ecosystem. But the warriors guarding the cryptocurrency prepare to defend
First, Elon Musk, the eccentric head of the quirky car company Tesla and one of Bitcoin’s most ardent supporters, tweeted on Saturday that the cryptocurrency “seems overvalued.”
Bitcoin hit an all-time high above $ 58,000 on Sunday, and then US Treasury Secretary and former Fed Chairman Janet Yellen called Bitcoin “an extremely inefficient method of payment,” criticizing the huge amount of energy it uses. Against the backdrop of these comments, bitcoin fell more than 30% and tested the low in the $ 45,000 area.
And on Tuesday, the New York prosecutor’s office decided to suspend the “illegal activities” of Bitfinex and Tether in the state. These companies are now prohibited from serving New Yorkers as they defrauded the market by overstating reserves and hiding an estimated $ 850 million loss.
Experts fear that this could seriously hit bitcoin due to the role that the dollar-pegged stablecoin Tether (USDT) plays in driving the flow of dollars into the bitcoin ecosystem.
Tether’s current dollar-denominated assets are valued at $ 34 billion. But regulators and critics are concerned about the shape and liquidity of the dollar-denominated assets that Tether allegedly holds to back its dollar-pegged token. Many believe that the value of bitcoin may be synthesized by over-reliance on this kind of asset, which they say is only partially funded.
Finally, New York Attorney Laetitia James called Tether a “stablecoin with no stability” in part because the tokens were never fully collateralized. In some cases, she said, Tether’s asset statements only came about as a result of temporary cosmetic cash injections (commonly referred to in the financial sector as combing).
From the statement of the attorney general:
An investigation by the Attorney General’s Office found that starting no later than mid-2017, Tether did not have access to banking services anywhere in the world and therefore did not have reserves for a certain period of time to provide coins in circulation at the rate of one dollar for each tether. , contrary to their claims. In response to constant questions about whether the company really had sufficient funds, Tether released the results of its 2017 self-“test” of cash reserves, which it called “a bona fide attempt to provide an interim analysis of the cash situation.” However, in reality, the cash purported to support the tethers was only deposited into Tether’s account on the morning of the company’s “verification” day.
Will Tether’s failure affect the cryptosystem?
On November 1, 2018, Tether announced another self-check of its cash reserves: this time at Deltec Bank & Trust Ltd. in the Bahamas. The announcement was linked to a letter dated November 1, 2018, according to which tethers are fully cash backed at a rate of one dollar per token. However, the very next day, November 2, 2018, Tether began transferring funds from its account, eventually moving hundreds of millions of dollars from Tether bank accounts to Bitfinex accounts. As a result, as of November 2, 2018 – one day after the last “check” – there was again no funds in Tether’s bank account to provide tethers with US dollars one to one.
Also Read: XLM Price Prediction
The full report is worth reading, in part due to the scale of Tether’s alleged misallocation of partially funded assets. For example, in 2017, Tether repeatedly denied rumors of insolvency in the media, despite the fact that at the same time it sought from the Panamanian bank Crypto Capital to return almost $ 1 billion in assets.
Now the New York attorney is demanding from Bitfinex and Tether to pay a fine of $ 18.5 million, but it is not yet known to what extent this news will throw the cryptosystem back.
In theory, although they were stablecoins, they were invented to eliminate vulnerabilities in the financial sector related to centralized control – money printing and capital shortages. However, the theoretical exposure of Tether and Bitfinex suggests that the cryptocurrency monetary system, ostensibly inaccessible to hacking or manipulation, has nevertheless fallen victim to the very forces that Satoshi Nakamoto (the anonymous creator of Bitcoin) has criticized in traditional finance.
Yet enthusiasts have so much faith in the “currency” system – especially hodlers (those who buy and hold currency no matter what) – that the system will probably ignore Tether’s failure. After all, Bitcoin has already proven its resilience amid reputation issues, stock exchange hacks and capital losses. Many of them, such as the MtGox fiasco, could have led to the bankruptcy of the traditional financial system.
The collective power of memes
In its current incarnation, the Hodler class represents long-term capital that is becoming a rarity in traditional markets. If hodlers can regulate their activities like OPEC and resist the temptation to sell, then having such capital could give Bitcoin an edge over competing systems.
The bad news is that even in the best of times, OPEC has not always been able to meet targets and quotas. On the other hand, OPEC has never had a meme culture to support Hodlers in difficult times.
The eccentric Elon Musk did not help either, who would have happily signaled his intentions mysteriously. Not only is the king of memes preparing to play the role of Saudi Arabia in the bitcoin world by converting Tesla’s reserves into cryptoassets, some even think that his ultimate goal may be to send bitcoin miners into space, where they can earn inexhaustible wealth in cryptocurrency thanks to cheap and limitless solar energy.
Analogies are already emerging
Saudi Arabia, which has the largest oil reserves and the lowest production costs, was considered the ultimate stabilizing producer, which implied that no matter who officially headed the cartel, the kingdom could single-handedly influence the supply marginal balance. During the heyday of OPEC’s power, the oil market tried desperately to parse every statement by the Minister of Oil and Mineral Resources of Saudi Arabia in order to unravel the country’s intentions in terms of oil production.
Elon may not have large reserves of cheap energy yet, but his tweets seem to be enough to influence the Hodlers, or at least raise their morale. In the meantime, deciphering the true meaning of his tweets is as complex an art as reading runes or encrypted war reports.
