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Major cryptos are in the red as major stablecoin Tether faces another lawsuit.
The Crypto Fear and Greed Index, a measure of crypto sentiment, says it all. After the same opinion dominated last week, market sentiment is at “Extreme Fear” again.
Over the last 24 hours, Bitcoin fell below $46,000. It since settled at $47,000. Ethereum, the second-largest crypto, fell to $3,806. Furthermore, smaller coins such as BNB, Solana, Cardano and XRP are all red. Except Doge, which rose after Elon Musk again said the meme coin was better than Bitcoin.
Several factors led to this significant crypto correction. First, Crypto markets reacted to the November CPI reports, which indicated that the Federal Reserve might raise interest rates.
However, markets also likely reacted to the news of a new lawsuit against Tether. Specifically, Tether and its subsidiary Bitfinex face a new class-action targeted at its stablecoin business.
Tether faces a class-action lawsuit filed in the U.S. District Court of the Southern District of New York. Plaintiffs Matthew Anderson and Shawn Dolifka accused Tether of unlawful and deceptive practices, alleging that it lied about its reserves. It also asserts that Tether tried to “suppress” information about failing to undergo audits of its funds.
The above unfair and deceptive acts and practices by Defendants were immoral, unethical, oppressive, and unscrupulous.
The plaintiffs claim that these actions by Tether constitute a breach of contract, which entitles them to damages.
Tether runs the stablecoin Tether, or USDT, which it maintains at a 1-to-1 ratio with the U.S. dollar. To claim that ratio, Tether needs substantial reserves of liquid assets. Preferably, this should be U.S. dollars, at a 1-to-1 ratio.
However, multiple reports accused Tether of not disclosing its reserves in the way it should. Tether maintained that it holds enough U.S. dollars to back all USDT in circulation. However, it has since revealed that only a minority of its reserves are in U.S. dollars. Out of the $69 billion of its resources, only $7.2 in cash. The majority is in commercial paper and U.S. Treasuries $30.6 billion and $19 respectively.
Still, the company maintains that it is not doing anything wrong. U.S. Treasuries and commercial paper are still liquid assets. That means that Tether could quickly convert these to US dollars if they need them. On the other hand, securities have an advantage over cash: yield. Even at somewhat modest rates of returns, with Tether’s $69 billion in reserves, returns are substantial. However, securities can go up and down in price, which means the strategy is riskier than just holding cash.
‘Nonsense Lawsuit, Shameless Money Grab’
Tether responded to the lawsuit, saying that the plaintiffs will not get a single “satoshi” from it. It called their filing “another nonsense, the copycat lawsuit” and a “textbook example of a “shameless money grab”. The two plaintiffs, Tether claims, are “looking for a hefty payout based on entirely meritless claims”. However, it warned that their efforts will “fail miserably.”
Bitfinex and Tether will aggressively litigate and dispense with the action in due course, and then pursue their remedies against the filing parties.
Tether faced a myriad of lawsuits in the past. Firstly, in February, the company settled with the New York Attorney General. Expressly, Tether and Bitfinex agreed to pay an $18.5 million fine and not do any trading in New York. Then, in September, it scored a legal win in a $1 trillion market manipulation case. Soon after that, Tether paid a $41 million fine to the Commodity Futures Trading Commission for misleading statements about USDT.