Is the Price of Bitcoin Based on Anything at All?

The cryptocurrency market’s reliance on Tether is a recipe for disaster

Illustration: Jessica Siao

Back in January, the controversial cryptocurrency Tether (USDT), “anchor[ed] to the price of national currencies like the U.S. dollar, the Euro, and the Yen,” as its website puts it, found itself in the midst of an existential crisis. For months, concerns had been circulating in the media and in online forums that something was off. The company that produced the coin, Tether Limited, had promised since its inception that for each unit it created on the blockchain, one actual U.S. dollar would be held in reserve. But in August 2017, a blogger on Hackernoon.com who goes by Bitfinex’ed started raising questions about whether Tether was really sitting on all those greenbacks. If it wasn’t, the coin wouldn’t really be tethered at all.

In response, Tether Limited published a memo from an accounting firm affirming that it was fully backed. But the document fell suspiciously short of an official audit, and doubts only increased. On January 27, 2018, Tether parted ways with the auditor. Then, three days later, Bloomberg’s Matthew Leising reported that Tether Limited and its associated exchange had been subpoenaed by the Commodity Futures Trading Commission in another attempt to determine whether Tether is in fact backed by…