A growing number of virtual currency investors are worried that the prices of Bitcoin and other virtual currencies have been artificially propped up by Bitfinex an Tether.
In December, Bitfinex was subpoenaed by the Commodity Futures Trading Commission, a United States regulatory agency. The news, first reported by Bloomberg on Tuesday and confirmed by a source familiar with the subpoena but not allowed to publicly discuss an ongoing investigation, led to a sell-off in most virtual currencies.
The people behind Bitfinex issue a virtual currency called Tether. Unlike most digitals tokens, every Tether is supposed to be backed by traditional money — the United States dollar. New Tether tokens are issued when investors give them dollars. One dollar is worth one token.
Because of the credibility that comes with that tie to the dollar, Tether are often used to buy other virtual currencies like Bitcoin.
In recent months, however, many investors have been raising alarm bells about Tether. Hundreds of millions of dollars worth of new Tether were created; almost always when the prices of other virtual currencies were heading down. The Tether were used on the Bitfinex exchange to make big purchases of Bitcoin and virtual currencies, helping push their prices back up, according to multiple analyses of data from Bitfinex.