A Big Nothing Burger Or The Pin That Pops The Bubble?
If the events in the crypto market of December 2020 teach us anything, it’s that the actions of the financial regulators can cause quakes that have a tremendous impact on crypto prices.
Think back to late November and early December. There was an abundance of enthusiasm towards XRP with the (back then) forthcoming airdrop of Spark tokens. In late November, the price of XRP stood at 26 cents.
Airdrop Of Spark Tokens
With the interest in holding XRP tokens so as to benefit from the Spark airdrop, crypto investors were rushing into XRP, and drove its price above 70 cents.
The upward momentum in price was invigorating.
Even after the airdrop, the price of XRP was hovering around 60 cents as late as December 20.
Enter The SEC
Then the news hit.
The SEC had filed a lawsuit against Ripple. The price immediately crashed to 20 cents, wiping out more than 2/3rds of XRP’s value in a matter of days.
The moral of the story: actions taken by financial regulators can have an overwhelming effect on price.
Fast-forward to today. An important deadline has arrived in the case of Attorney General of the State of New York v. iFinex Inc. (the parent company of both Bitfinex and Tether).
Tether vs. New York State
Some history of this case:
Back in April 2019, the New York Attorney General (NYAG) accused stablecoin operator Tether of covering Bifinex’s $850 million losses by sourcing its USDT to cover the shortfall. Nevertheless, Tether replied calling this accusation in “bad faith” and “riddled with false assertions”. Note NYAG has filed charges against iFinex, the parent company of Bitfinex and Tether.
During the preliminary injunction in May 2019, Judge Joel Cohen extended the deadline to ninety more days. By August 2019, NYAG presented another proof and evidence in the case highlighting how Bitfinex and Tether were allegedly involved in covering up the $850 million losses. Later, the NYAG also called out iFinex’s motion “an improper attempt to impede a lawful investigation”.
The case took an interesting turn last year in September 2020 when Judge Cohen ruled that both Tether and Bitfinex should produce documents disclosing their financial relationship. In addition, he also passed an injunction barring Tether to issue loans to Bitfinex by ninety more days.
Last month, on December 9th, 2020, Attorney General Letitia James filed a document requesting Judge Cohen to extend the timeline to January 15. The Attorney General said that “the parties continue to cooperate on the production of documents in response to the 354 Order, and anticipate that the production might be finalized in the coming weeks.”
Two days ago, Friday, January 15, was the d-day for iFinex to produce necessary info and the documents so that NYAG is able to continue the investigation further. iFinex had to produce documents detailing the issuance and redemptions of Tether’s USDT stablecoins, and also disclose the trading activity on Bitfinex concerning Bitcoin and USDT.
We’re currently at the crossroads of the most crucial cases in the crypto space. Tether’s market cap has grown to $25 billion, and the token currently sits at #3 on coinmarketcap’s list of the largest cryptocurrencies in existence.
Will Tether Drag The Entire Crypto Market Lower?
Some market analysts believe that the issuance of Tether is being used to prop up the price of Bitcoin, and by extension the entire crypto market. Others, such as Ganesh Viswanath-Natraj, Assistant Professor of Finance at Warwick Business School, stated on a recent podcast, “Based on our evidence there, there’s no effect of tether issuance on crypto asset prices.”
While there were no new statements from the NY Supreme Court on deadline day, a statement is likely to be forthcoming this week.
If and when the statement unfolds, the BIG question for the entire crypto market is “Will it be a nothing-burger, or will it be the pin that pops the crypto bubble?”