For a long time, the fear, uncertainty, and doubt (FUD) surrounding Tether (USDT) had been absent, but this has changed with a recent lawsuit against the largest stablecoin issuer in the U.S. This announcement arrives at a critical time for cryptocurrency investors, who are understandably concerned about the implications of such legal action.
Why Are Cryptocurrencies Declining?
The price of Bitcoin (BTC) $90,190 recently dropped from over $68,000 to as low as $66,770 following the news of a federal investigation into Tether. The investigation stems from allegations that the company conducted business with groups on the U.S. sanctions list. The U.S. Treasury Department is considering imposing sanctions on Tether, and if USDT were to be removed from circulation in the country, this could lead to a more significant downturn in the cryptocurrency market.
Tether, as the dominant stablecoin, has extensive pairings across altcoins. While the company has converted its reserves to U.S. Treasury bonds, mitigating the risk of a bank run, the potential removal of USDT from the market due to sanctions could create prolonged negative sentiment in exchanges, akin to a breakdown in its peg.
“Federal prosecutors in Manhattan are investigating whether the cryptocurrency has been used to finance illegal activities such as drug trafficking, terrorism, and hacking.”