US Officials Are Probing Tether Role in Bitcoin Market Manipulation

US Department of Justice is investigating Tether for market manipulation

According to a Bloomberg report, the US Justice Department is investigating whether Bitcoin's famous surge previous year, in which it came close to reaching $20,000, was the result of traders using Tether to drive up its price. And the investigators are reportedly looking into whether tether was used to buy bitcoin as a way to artificially inflate the price during its monumental peak.

While federal prosecutors opened a criminal probe into cryptocurrencies months ago, according to Bloomberg, suspicions are looming on whether Tether - another digital token - and the crypto exchange Bitfinex - may have been used by traders to illegally move up prices. According to sources familiar with the matter, the CFTC and the DoJ are now coordinating their investigation of the activities of both firms.

Giving further details, Bloomberg reports that the DOJ's inquiry is primarily to determine if the sudden rise of virtual currencies is a result of actual demand or partially influenced by market manipulation.

As part of the probe, the Justice Department is looking into Tether's claim of being USD-backed, how new Tether coins are created, and why they enter the market predominantly through Bitfinex. While these investigations involved many different types of crypto scams, particularly those associated with initial coin offerings (ICOs), regulators may be focusing their efforts more toward larger market participants such as Tether and Bitfinex.

"It couldn't be determined whether government officials are exclusively investigating activity that occurred on Bitfinex or if exchange executives are suspected of illegal behavior".

The Commodity Futures Trading Commission (CFTC) subpoenaed Tether and Bitfinex-the companies are run by the same management and share executives-in December, partly because the CFTC wanted them to prove their claims that Tether was tied to the dollar. Recently, a University of Texas Professor and a Doctoral candidate released a paper relating Tether trading activities to Bitcoin prices. When there is a drop in the price of Bitcoin, Tether's USDT in Bitfinex and other exchanges are used to purchase Bitcoin to drive the price up.

Featured image from Shutterstock.

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