The Wall Street Journal released an article claiming that the U.S. has launched an investigation against Tether, the issuer of the world’s most popular stablecoin USDT.
The article claimed that Tether was investigated for the alleged use of its stablecoin in illicit action, including sanctions evasion and money laundering. Importantly, the WSJ noted that the U.S. was considering imposing sanctions on Tether.
Not surprisingly, Tether rushed to deny allegations, calling the WSJ article “irresponsible reporting”. Tether confirmed that it had “no knowledge of any such investigations into the company.” The issuer of USDT also added that it had “extensive dealings with law enforcement to crack down on bad actors.”
WSJ articles often have a major impact on financial market dynamics, so USDT faced a serious test after the article was released. In the short term, the USDT found itself under pressure and temporarily lost its peg to the U.S. dollar. However, it should be noted that the sell-off was not strong and USDT has quickly recovered, highlighting its ability to overcome FUD.
Previously, the usual FUD on Tether was mostly focused on the company’s reserves. Typically, analysts or other talking heads claimed that Tether did not have enough reserves to support the stablecoin and was basically printing money out of thin air. These claims were issued every year and none of them was confirmed.
Now that the capitalization of USDT exceeds $120 billion, few people take claims about Tether’s “insufficient reserves” seriously. Tether’s business has reached a huge scale and the company’s executives have no reason to risk their freedom as they are already making tons of money.
Apparently, the time has come for a new type of FUD on Tether. The stablecoin is accused of being used by illicit actors all over the world.
How serious is the potential threat? It’s not the first time that WSJ has issued FUD on Tether. In recent years, WSJ accused Tether of insufficient reserves, weak management, and even the falsification of documents. Meanwhile, the capitalization of USDT continued to grow together with its role in the crypto world. None of the allegations has been confirmed. It is impossible to confirm or deny WSJ allegations without access to insider information, but history tells us that WSJ reporting on Tether should be taken with a grain of salt.
What happens if WSJ reporting is accurate and the investigation against Tether is underway? At this point, it looks like the most probable outcome in this scenario is the tightening of compliance in USDT and a series of actions against illicit actors.
U.S. sanctions on Tether do not look like the most likely outcome of the potential investigation against the company. Tether has grown into a significant player in the U.S. debt market. Sanctions against the company would force it to sell its holdings, triggering a strong sell-off in the U.S. debt markets and leading to rising interest rates. The economic damage made by such a move would be too big to ignore.
At this point, the markets do not believe in such a scenario. Bitcoin and other cryptos (which will certainly suffer sell-offs if the U.S. imposes sanctions on Tether) have been steadily moving higher in recent weeks, so traders bet that WSJ issued just another FUD on Tether.
Article published by Sergei Gorshunov on HackerNoon.
