Finance

United States government declares temporary halt on Cryptocurrency tradings as new evidence arises in Tether Scandal

On February 11th 2018, a SEC agent confirmed in an interview that they will be temporily halting all trades by U.S Customers. The cryptocurrency “halt” resulted from information recieved by the U.S. Securities and Exchange Commission provided substantial evidence that Tether may have been used to prop up cryptocurrency markets in 2017, and violates the Patriot Act Provisions on money laundering and other financial fraud laws. The specific crackdown procedure is said to be announced in the following days to specify strict instructions and guidelines set out in a new regulatory practice.

Over the past few weeks, many banks have declared that they will stop customers from purchasing cryptocurrencies with it’s credit cards. This, mixed with other news has resulted in Bitcoin to plument in January-February 2018.

The negative attributes and uses of cryptocurrency are substantial: Bitcoin is known to facilitate money laundering, drug sales and extortion—illegal activity for which transactions are banned by centralized authorities that control all other electronic payment channels. Other cryptocurrencies are engaged for such transactions and have been used for unlicensed securities or “smart” contracts (which appear to be useful for Ponzi schemes or as code for thieves to exploit), or providing better anonymity guarantees.

What is Tether?

Tether is a cryptographic token built on top of Bitcoin that self-describes as such a digital banknote. Tether is operated by the same group in charge of the Bitfinex Bitcoin Exchange,  which was cut off from global banking operations in April 2017. The exchange takes U.S. dollars and says that it keeps them in reserve while issuing Tethers. It also says it will redeem Tethers for U.S. dollars on demand. The volume of Tethers has rocketed from $300 million in September to about $2.2 billion as of Feb. 1. The growth was created almost entirely in increments of $100 million, which were transferred to the Bitfinex exchange to purchase other cryptocurrencies.

Accordingly, Tether has become the reserve currency of sorts for unbanked exchanges. Numerous cryptocurrency exchanges hold Tethers since they can’t access other banking resources. Without Tether, huge swaths of the speculative environment would be undermined: Speculators would be unable to move from unstable assets to stable, valued ones. If forced to shift only between different unstable assets, some exchanges might cease to exist. These exchanges don’t generally follow regulations on money laundering and other financial laws—if they did, they could access legitimate banking resources. They are also the primary vehicle for hiding money flows by allowing customers to switch between different cryptocurrencies. In short, they represent a significant problem.

Tether isn’t just theoretically useful for money laundering; its use as a reserve currency for unbanked exchanges shows its value for laundering funds. Tether is used to conduct electronic financial transactions that bypass the oversight inherent in the banking system. Consider also that only one cryptocurrency exchange with banking, Kraken, accepts Tether for trading at all and that the only thing Tethers can be sold for on that exchange is U.S. dollars. On Kraken, one can’t use Tethers to directly buy different cryptocurrencies.

U.S. Securities and Exchange Commission said that Tether appears likely to be a scheme that facilitates money laundering or to be a “wildcat bank,” one that prints banknotes that aren’t actually backed.

Image result for tether

Earlier this month, India’s government declared a ban on the use of cryptocurrencies. This news jolted the market, and provided support to bearish sentiments. This news, mixed with rumors surrounding the Tether scandal resulted in the loss of approximently $40 billion from the total cryptocurrency  market capitalization.

This halt in trading, and ongoing investigation hopes to reduce options for criminal transactions and minimize cryptocurrency bubbles—in other words, society would benefit all around.

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