Worries Grow That the Price of Bitcoin Is Being Propped Up
A growing number of virtual currency investors are worried that the prices of Bitcoin and other digital tokens have been artificially propped up by a widely used exchange called Bitfinex, which has a checkered history of hacks and opaque business practices.
Bitfinex had contracted with an American firm, Friedman, to audit its records and prove that its operation of Tether is above board. But last week, Bitfinex said it was cutting ties with Friedman, after waiting months for it to finish the audit. That news generated more suspicion.
?It?s a signal to the market of what those who have scrutinized the situation already believe: There is a problem here,? said Jill Carlson, a former trader at Goldman Sachs who now consults with a variety of virtual currency companies. ?The dissolution of a relationship between an auditor and a company is very rarely a good sign that the company is behaving in accordance with market best practices.?
?It?s a signal to the market of what those who have scrutinized the situation already believe: There is a problem here,? said Jill Carlson, a former trader at Goldman Sachs who now consults with a variety of virtual currency companies. ?The dissolution of a relationship between an auditor and a company is very rarely a good sign that the company is behaving in accordance with market best practices.?
Tether offered a preliminary report last year from Friedman, the accounting firm, suggesting that it had bank accounts with dollars corresponding to all the Tether that had been issued. But the report was far from conclusive and Tether has never produced a real audit, leading to suspicions that Bitfinex may be printing virtual money backed by nothing.
The Tether currency has been valuable to traders because it allows them to hold a stable token, tied to the value of the dollar, and move it quickly between virtual currency exchanges.
But there is a downside. Because the identity of Tether holders is not always clear, the movement of the virtual token between exchanges ? and across national borders ? has raised concerns among lawyers about money laundering. The spread of Tether beyond Bitfinex has also spread the risk of its failure to other exchanges.
The Tether currency has been valuable to traders because it allows them to hold a stable token, tied to the value of the dollar, and move it quickly between virtual currency exchanges.
But there is a downside. Because the identity of Tether holders is not always clear, the movement of the virtual token between exchanges ? and across national borders ? has raised concerns among lawyers about money laundering. The spread of Tether beyond Bitfinex has also spread the risk of its failure to other exchanges.
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