Cryptocurrency and Bitcoin prices saw a sharp decline during the evening trading hours in the United States on Friday, after the Wall Street Journal published a report about a US criminal investigation into the source of the stablecoin Tether.
Bitcoin (BTC) looked set to make a fresh jump towards $70,000, but it immediately pulled back after the report, hitting a low of $66,500, down nearly 2% in 24 hours, before rallying back to $66,800.
The newspaper pointed out that the US authorities are investigating possible violations of sanctions and anti-money laundering rules by Tether, which has raised concerns about the future of this stablecoin, which is considered the backbone of the digital currency market.
According to a report by the Wall Street Journal, the Manhattan District Attorney’s Office is leading a criminal investigation into Tether over potential violations of sanctions and anti-money laundering rules, which led to a slight drop in the price of Tether, which traded at $0.9993 instead of $1, raising concerns among investors about the stability of the most widely traded stablecoin on the market.
In response to the report, Tether CTO Paolo Ardoino denied the reports, saying in a post on X that the paper was re-publishing old hype and that there was no indication that Tether was under investigation. The company’s spokesperson added that the allegations were not based on verified sources, describing them as “random speculation.”
The importance of Tether and its impact on the digital currency market
Stablecoins, such as Tether, are a type of cryptocurrency whose value is typically pegged to the US dollar, allowing traders and investors to quickly enter and exit trades without the need for banks or traditional currency.
Tether (USDT) is the largest stablecoin in the market, with a market cap of over $120 billion, and it also has the largest daily trading volume in the market, at $46.7 billion, according to CoinGecko.
Tether aims to provide a fast and secure alternative for traders to enter and exit markets without the need for traditional banks or fiat currencies, but the company is not without controversy, facing doubts about the reliability of the reserves that back its coins.
“The repeated investigations into Tether are adding to the uncertainty in the market, especially since the stablecoin is a staple of daily trading in the cryptocurrency market,” said analyst Joseph Edwards of Enrkrateia Capital. “These investigations could prompt investors to look for more stable alternatives.”
In 2021, Tether reached a settlement with the New York State Attorney General, agreeing to cease doing business in the state after a two-year investigation revealed the company had made misleading statements about the backing of its coins.
The Wall Street Journal also previously reported that Tether backers used fake documents and shell companies to enter the banking system, allegations the company has strongly denied.
For his part, financial analyst Alex Smith believes that the ongoing doubts about Tether could negatively impact the cryptocurrency market in general, especially if investors decide to abandon the stablecoin and look for other alternatives such as USD Coin (USDC).
He added: The ability to maintain confidence in stablecoins is key to the stability of the digital market, and any shake-up in this confidence could lead to major repercussions.
