Weiss Ratings has warned investors about the dangers of Tether, the high-profile cryptrocurrency startup that has been summoned by U.S. regulators to appear in court. Although no charges have been filed, Tether has raised suspicion over its close relationship with Bitfinex and the sudden spike in circulation of its native USDT token.
The Florida-based rating agency raised several warning signs in its evaluation of Tether, including a lack of transparency and virtually no proof that the company’s USDT tokens are fully backed by the U.S. dollar.
In a Feb. 12 blog post, Juan M. Villaverde issued the following statement:
“The big issue: There’s never been an audit, and the folks behind Tether has been quite shady when asked. They have continuously claimed their tokens are backed 100% by actual dollars, yet they have failed to present any evidence to support this claim.”
The blog post also cited the growing belief that Tether is really operating a fractional reserve system. In other words, Tether’s USDT tokens are not fully backed by dollars.
Since issuing its ratings, Weiss appears to have launched an entire division devoted to cryptocurrency. The company rates coins from A to E, or scores ranging from “excellent” to “very weak”. No cryptocurrency received an A in Weiss’ first-ever cryptocurrency rating. B-rated Ethereum and EOS were given the highest ranking of 74 coins studied.
Tether has been the center of enormous controversy in recent weeks after severing its relationship with auditor Friedman LLP. The decision raised fresh warning signs about the company’s finances and whether it had enough reserves on its balance sheet.
According to Bloomberg, Tether was issued a subpoena alongside Bitfinex back in December, although the details of the court order were not provided. It was later discovered that both companies operated under the same chief executive.
The USDT token is ranked 17th in terms of market cap, but is third-largest by trade volume.
In January alone, the supply of USDT tokens surged by 850 million, according to data provider CoinMarketCap. Some analysts have speculated that the token circulation has spiked to keep bitcoin prices artificially inflated, with more coins created every time the coin’s value drops. Based on this hypothesis, Tether has had an oversized impact on bitcoin prices over the past year, which means the company’s solvency issues could have an equal or greater impact on the market moving forward.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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