(Bloomberg) — Of all the legal actions taken against cryptocurrency companies by US regulators and prosecutors over the past year, arguably none threatens to shake up the digital-asset industry as much as a potential crackdown on Tether Holdings Ltd.
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Tether is the issuer of a namesake token known as USDT, designed to be a digital substitute for the US dollar, with a market capitalization of about $12O billion. It ranks as the third-biggest cryptocurrency by value, and is the most-traded token on a daily basis due to its role as a stand-in for the dollar in markets where traders aren’t able to use traditional currencies for transactions.
“For the crypto industry and crypto writ large, I do think Tether is too big to fail,” Hilary Allen, a law professor at American University who studies digital assets, said in an interview on Thursday, a day before the Wall Street Journal reported on US probes of the token that also raised the possibility of sanctions from the US Treasury. “If Tether were to go to zero tomorrow,” Allen added, ”it would be disastrous for the crypto economy.”
Tether CEO Paolo Ardoino immediately went on the defensive following the Journal report, posting on X that “as we told the WSJ, there is no indication that Tether is under investigation. WSJ is regurgitating old news. Full Stop.”
So far, like other times when troubling news about Tether broke, there are no signs of it going to zero. While the token did dip on the report, it went only to as low as about 99.69 cents. Other, more volatile tokens, reacted more strongly to the report, with Bitcoin and Ethereum each falling more than 2%.
For years, questions and controversies have swirled around this cryptocurrency dreamed up in part by a former child actor famous for playing a character who’d missed a penalty shot in The Mighty Ducks.
While scrutiny originally was focused on whether the company truly held enough assets to back up the $1 value of its token, federal prosecutors in Washington warned top Tether officials in 2021 that they could be charged for allegedly deceiving banks they used to move cash, Bloomberg previously reported. The probe was later moved to the US Attorney’s Office in Manhattan and two years passed with no indictments or other enforcement actions.
Yet reporting from the Wall Street Journal on Friday says the US hasn’t given up its scrutiny of Tether. Federal prosecutors in Manhattan are investigating whether it has been used to fund illegal activities such as the drug trade, terrorism and hacking, or launder the proceeds of such, according to the Journal. An earlier Bloomberg report, published in March, said the US and UK were reviewing more than $20 billion of transactions made on Moscow-based Garantex, a crypto exchange sanctioned by the US and UK on suspicion of enabling financial crimes and illicit transactions in Russia.
