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Tether and Bitfinex to Pay $42.5M for Violating CTFC Rules

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The Acting Chairman of CTFC noted that the case showed just how desperately the digital asset marketplaces need honesty and transparency.

The Commodity Futures Trading Commission (CFTC) has fined both Tether and Bitfinex for about $42.5 million. While it found no issues relating to Tether’s current operations, the commission found Tether guilty of making “true or misleading statements and omission of material fact” about its stable coin USDT.

According to the CFTC,  there were periods when the stable coin was not fully backed by reserves.  This finding was contrary to the company’s claims. The commission found that Tether only had enough dollar reserves for its tether tokens for 27.6% of the days during a 26-month sample between 2016 and 2018.

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Based on these findings, the commission fined Tether to a tune of $41 million as a civil monetary penalty. The company was also warned to be careful of any further violations of the Commodity Exchange Act (CEA) and CFTC regulations.

Likewise, the commission found Bitfinex guilty of misdeeds in its operations. The crypto exchange was found to have engaged in illegal, off-exchange retail commodity transactions in crypto assets with US citizens. Also, Bitfinex was found guilty of operating as a futures commission merchant (FCM) despite not registering as such.

As a result, Bitfinex was fined $1.5 million as a civil monetary penalty.  Additionally, the crypto exchange will be required to design systems to prevent illegal retail commodity transactions.

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Bitfinex Case: CFTC Wants to Maintain Market Integrity

Previously, Bitfinex and Tether were fined $18.5 million in February to settle a case between the companies and the New York Attorney General’s Office (NYAG). The New York Attorney General Letitia James stated the companies of “recklessly and unlawfully covered up massive financial losses to keep their scheme going and protect their bottom lines.”

With the new findings, Acting Director of Enforcement Vincent McGonagle noted the judgment was a demonstration of the commission’s commitment to its charge. Also, he said:

“As demonstrated by today’s actions against Tether and Bitfinex, the CFTC is committed to carrying out its statutory charge to promote market integrity and protect US customers.”

In his statement, McGonagle added that “the CFTC will use its strong anti-fraud enforcement authority over commodities, including digital assets, when necessary.”

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The Acting Chairman of CTFC also expressed a similar opinion. He noted that the case showed just how much the digital asset marketplaces needed honesty and transparency. “The CFTC will continue to take decisive action to bring to light untrue or misleading statements that impact CFTC jurisdictional markets,” he asserted.

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Tether FUD: The Mystery Behind $1 Billion USDT Print, Will Bitcoin (BTC) Price Pump?

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The crypto market is going through another bearish phase this month as the top cryptocurrencies lost majority of their gains from October. Bitcoin (BTC) has failed to hold key support of $55,000 and currently trading at $54,777. Amid growing pressure from the bears, Tether’s latest issuance has created another market FUD.

Tether is often accused of printing additional USDT to pump the BTC market. Even though there hasn’t been conclusive evidence for the claims, the controversy around Tether’s reserves only adds fuel to the fire. The latest issuance of $1 billion USDT has created a similar controversy especially given the crypto market is bleeding.

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Tether treasury printed a billion-dollar worth of USDT on November 26, the same day the crypto market fell sharply due to Covid-19 new variant induced fears in the stock market. Infamous crypto Twitter account that goes by the name of Mr. Whale claimed that Tether treasury minted $1 billion out of thin air.

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The controversy also comes at a time when the US federal agencies have demanded more power from Congress to crack down on the stablecoin market. Tether has always been a major concern for the regulators, given its past record with the mismanagement of USDT reserves. The stablecoin issuer was recently fined $41 million by CFTC over misleading claims. However, this wasn’t the first time that Tether has found itself at the receiving end of regulatory agencies.

Earlier in February this year, Tether settled a long-drawn case with the New York Attorney General (NYAG) Office for mismanagement of funds. Tether was fined $18.5 million and barred from offering any service in New York.

Will BTC Price Pump Post Tether Issuance?

Bitcoin’s (BTC) price showed minor recovery earlier today, reaching a daily high of $55,329 before retracing below the $55K support zone again.  The top cryptocurrency has lost more than 20% from its all-time high of $68,789 in October.

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Tether Bitcoin
Source: TradingView

With November turning bearish again, the major price targets of $98K seem to be out of the picture. Plan B, the Bitcoin analyst who popularised the Stock-to-Flow model admitted that BTC is set to miss its first price target of November.

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Tether to work with regulators to address stablecoin concerns

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  • Sen. Sherrod Brown has sent letters to stablecoin issuers and crypto exchanges requesting information on how they are protecting consumers and investors. 
  • Tether in response to the press release issued by Sen. Brown Tether has assured that they would be working with lawmakers to improve the industry.

The recent surge of the crypto market value has called for the need to protect investors through designed regulations. With the majority of the concerns focussing on the highly volatile assets, stablecoins like Tether (USDT) that hold the value and stability of another financial asset have not been spared. In a recent report by the President’s Working Group on Financial Markets, stablecoin was said to pose a huge risk to investors as the unregulated assets are a threat to market integrity and investors’ protection. 

The report highlights that stablecoins may lead to “possible fraud and misconduct in digital asset trading, including market manipulation, insider trading, and front running, as well as a lack of trading or price transparency.”

In response to the concerns highlighted in the report, Sen. Sherrod Brown, Chair of the U.S. Senate Committee on Banking, Housing, and Urban has sent letters to stablecoin issuers and crypto exchanges requesting information on how they are protecting consumers and investors. 

A copy of the letter was sent to Gemini, Paxos, Coinbase, Tetter, Circle, Binance.US, and TrustToken. 

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Sen. Brown wrote in the letter to Circle: 

I have significant concerns with the non-standardized terms applicable to redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms.

Tether ready to collaborate to meet investors protection standard

Tether in response to the press release issued by Sen. Brown has assured that they would be working with lawmakers to improve the industry.

We appreciate the interest from lawmakers in the function, purpose, and security of all stablecoins across the cryptocurrency ecosystem. We have been and are pleased to work with policymakers around the world on these important issues.

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In early October, the Securities and Exchange Commission (SEC) issued a subpoena of which Circle, the issuer of USD Coin (USDC) pledged to fully cooperate with the regulators. Circle has also hinted that to meet the required accountability standard, it will be working to become more transparent.

Authorities at G20 have also called for the regulation of stablecoins before they are approved for use. Not just that, it was also said the Central Bank Digital Currencies (CBDCs) must be implemented before global stablecoin use. 

Recently, the tech probe launched by the Consumer Financial Protection Bureau (CFPB) included stablecoins. According to Rohit Chopra, the director, stablecoins issued by a big tech firm could see a fast and widespread adoption when it leverages its large user base. SEC Chair Gary Gensler also referred to stablecoins as “Poker Chips” after it was reported that SEC has decided to crack down on the market. 

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Regulators are primarily concerned about the asset backing of stablecoins though it is said to be pegged in the value to the US Dollar. However, the popular stablecoins are actually backed by commercial paper like Tether and US Treasury debt like USD Coin. 

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Tether responds that he will collaborate with the US Senate

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Yesterday we published the news: “US Senate urgently requires data from Tether and other stablecoins”, with the letter sent by the Committee on Banking, Housing and Urban Affairs, translated in full.

Today, Tether’s official profile posted on twitter that:

“We appreciate the interest of policymakers in the function, purpose and security of all stablecoins ​​in the entire cryptocurrency ecosystem. We have worked and are pleased to work with policy makers around the world on these important issues.”

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And they continued:

“It’s critical that we work collaboratively to build this industry. As blockchain technology pioneers and leaders in transparency and innovation, Tether is dedicated to ensuring our customers are properly protected and have the tools they need to succeed.”

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“We look forward to working with stakeholders to develop these structures.” – concluded.

It’s not the first time the US government has made a regulatory move against Tether, and it’s not the first time the company has responded that it intends to collaborate with the authorities.

Both Tether and other stablecoin broadcasters have until December 3rd to officially answer all questions in the November 23rd letter.

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