A pillar of the young cryptocurrency market is wobbling following allegations from the New York Attorney General’s office that the dollar reserves backing popular digital coin tether have been compromised. Investors don’t seem too concerned.
Tether was recently trading at around 99 cents, close to parity with the U.S. dollar, according to CoinMarketCap. Prices dipped to 97 cents on Thursday after the New York Attorney General said the cryptocurrency exchange that controls Tether Ltd. used the reserves to cover up $850 million in missing funds.
Bitcoin also has stabilized after falling late last week. On Monday around 5 p.m. ET, it was trading at $5,142, according to CoinDesk, flat on the day. It hit a 2019 high of $5,565 on April 23.
“The market just doesn’t care,” said one cryptocurrency trader who asked not to be named. “This community has an immense tolerance for pain.”
The New York Attorney General on Thursday served iFinex Inc., the parent company of cryptocurrency exchange Bitfinex and Tether, with a court order demanding it refrain from continuing to cover up a loss of $850 million of customer funds from the exchange. The company is expected to respond to the order by May 3, according to a person close to the attorney general’s investigation.
Bitfinex said the attorney general’s court filings were “written in bad faith and riddled with false assertions,” and had characterized the transfer of funds as a line of credit from Tether to Bitfinex. It has said it plans to fight the court order.
The market’s indifference to the revelations is surprising. A so-called stablecoin tied to the U.S. dollar, tether has become a key source of liquidity for cryptocurrency businesses that have trouble maintaining real-world banking relationships. Some 80% of all bitcoin trading is done in Tether, according to data from research site CryptoCompare.
Some traders are starting to explore alternatives to tether. Cryptocurrency-services firm Paxos said Friday that it saw a noticeable uptick in inflows to its Paxos Standard stablecoin. It has added about $50 million since the news broke on Thursday, bringing its market value to about $155 million from $103 million.
Tether’s market value currently stands at around $2.8 billion.
Another stablecoin, USD Coin, saw inflows of about $50 million, boosting its total market value to about $300 million, according to its creator, Circle Internet Financial Ltd.
Still, “it might take weeks” before there is a broad movement out of tether, said David Jevans, chief executive at analytics firm CipherTrace. “I’m not sure it’s really sunk in.”
Write to Paul Vigna at firstname.lastname@example.org