Crypto Market lost $10 billion in an hour – Tether is to blame

Cryptocurrencies fell amid reignited regulatory worries and questions around the legitimacy of so-called “stablecoin” tether.

The entire market shed about $10 billion in value in the space of an hour late Thursday, CoinMarketCap data showed. This after the New York attorney general accused the operator of bitcoin exchange Bitfinex and tether issuer Tether Limited of hiding an $850 million loss.

The state’s top lawyer alleges Bitfinex used at least $700 million from Tether’s cash reserves to cover up the apparent loss of $850 million of client and corporate funds. Its findings were detailed in papers filed with the Manhattan Supreme Court.

Tether is a cryptocurrency that is meant to be pegged to the U.S. dollar — otherwise known as a stablecoin. Worries have been raised over whether Tether Limited holds enough dollars to back all the tokens in circulation.

The attorney general’s office said Thursday that Bitfinex handed $850 million to a Panama entity called Crypto Capital without disclosing it to investors. Executives at Bitfinex and Tether then allegedly “engaged in a series of conflicted corporate transactions” — where Bitfinex gave itself access to Tether’s cash reserves.

Tether is one of the most notable stablecoins on the market. It’s meant to be backed 1:1 by U.S. dollars to provide a stable value, and is often used as an alternative to government-backed money for crypto trading.

But it’s not been without controversy. Questions have arisen over whether it actually has enough dollar reserves to justify that dollar peg and whether it was used to manipulate bitcoin’s huge price spike in 2017.

Charles Hayter, CEO of digital currency comparison firm CryptoCompare, said the New York fraud probe into tether was affecting the market. He said it creates a knock-on effect as tether is “so ubiquitous and so enigmatic.”

Cryptocurrencies have slumped massively from a monster rally in late 2017. Bitcoin, once worth almost $20,000, has fallen steeply to just under $5,300 as of Friday. It had a recent pop last month that experts attributed to algorithm-driven trading.