Recently Reported Tether DOJ Probe Isn’t Necessarily Bad for Bitcoin (Opinion)
Though the Justice Department declined to comment for the article, Bloomberg was able to report last week that the DOJ is investigating U.S. banks and the backers of popular stablecoin USDT. There is some ongoing speculation about how this might affect bitcoin’s price.
What’s Supposedly Going on With Tether and the DOJ?
The Justice Department is reportedly seeking to determine the extent of U.S. banks’ knowledge of Tether Limited’s business and the prolific use of its stablecoin to buy other cryptocurrencies like bitcoin (BTC) and ether (ETH). According to Bloomberg, the focus of the probe is on conduct from years ago, when Tether was still new, and is concerned with whether the company concealed from its banking partners that transactions were linked to crypto.
Bloomberg says a potential criminal case “would have broad implications for the cryptocurrency market,” emphasizing that it would “mark one of the most significant developments in the U.S. government’s crackdown on virtual currencies.”
The impact could extend, the authors figure, to cryptocurrency exchange markets that set bitcoin’s price in massive daily volumes of trades:
“The token’s importance to the market is clear: Tethers in circulation are worth about $62 billion and they underpin more than half of all Bitcoin trades.”
Breaking it Down
As of the time of publication, Bitcoin’s 24hr trading volume was some $25 billion following a major rally sending bitcoin’s price soaring to 20% gains over the last seven days.
CoinMarketCap and CoinGecko both agree that the most recent 24-hour trading volume at the time of publication for the BTC/USDT trading pair was over $1.8 billion on Binance alone.
Will a DOJ investigation into a presumably lawbreaking practice or series of incidents years ago rattle the cryptocurrency markets and alter the bitcoin price chart as Bloomberg implies?
The financial newspaper of record isn’t the only one to predict a bumpy road ahead for crypto prices if Tether’s problems with the DOJ investigation get worse. Plenty of people have already suggested that if Tether goes down, this will have a terrible effect on Bitcoin’s price.
Of course, a liquidity crisis for Bitcoin and other cryptocurrencies would leave demand for cryptos lagging supply and send the price of bitcoin and other coins down.
But it’s important to remember, amid the breathless flurry of news headlines and FUD-based pronouncements, that this is just an investigation, if Bloomberg’s report is right, not even charges of wrongdoing. And we have no details of the U.S. banks’ role and responsibility in the matter being investigated, which is presumably of concern to the DOJ.
JP Morgan Had it Worse…
In 2015, JPMorgan Chase and Co, the biggest bank in the United States, pled guilty, along with four other major banks, to conspiring to fix foreign currency rates. For its part in the criminal conspiracy, JPMorgan agreed to pay a fine of $550 million.
Soon after, the Federal Reserve piled on with another $342 million fine that May. JP Morgan stock made some impressive gains that summer and closed out 2015 up for the year.
So going by market standards in recent years, an investigation by the Department of Justice doesn’t rule out a steady bitcoin price rally for the rest of the year. Not to mention that there are alternative stablecoins which, while not as nearly as commonly used as USDT, should be factored in.
What it will do is test Tether’s ability to keep its value proposition as a cryptocurrency amid business and legal turmoil. It’s worth noting in that regard that even if there is financial trouble ahead for Tether Limited, an independent insurance company attested in April that Tether stablecoin tokens are “fully backed” by their respective fiat peg currencies.