More worries about the increased regulation in India and the potential price manipulation at Bitfinex exacerbated the decline today. Bitcoin's prices could have been artificially inflated because of something called, Tether.
In December, the Commodities and Futures Trading Commission (CFTC) issued a subpoena to Bitfinex, one of the largest cryptocurrency exchanges in the world. The CFTC is questioning Bitfinex’s relationship with the virtual currency Tether, which Bitfinex claims is pegged to the dollar. That means, one dollar equals one Tether theoretically and the company should have the reserves to back it up.
Tether has become a popular way for people to buy Bitcoin on exchanges. The CFTC worries that Tether may not be backed by the dollar because Bitfinex has provided little proof of the relationship. If Tether is not backed by the dollar, Bitfinex is simply creating Tether coins out of thin air and using Tether to buy Bitcoin. What's more concerning is as Bitcoin prices fell, more Tether coins were created. If Bitfinex does not have the currency reserves to back Tether up, Tether crash could cause Bitcoin prices to collapse; especially, Bitfinex has the central role it plays in the market.
On top of the latest India and Bitfinex fiasco, Bitcoin has been surrounded by lots of negative news lately.
- South Korea implemented new rules to ban any anonymous trading account of the cryptocurrencies and imposed a 24%+ taxe on the exchanges.
- Facebook said on Tuesday that it was banning ads that promoted cryptocurrencies.
- Microsoft and Stripe have decided not to provide a payment platform for Bitcoin because of the rising transaction costs and huge price volatility.
Square, however, bucked the trend. It has decided to allow its users to buy and sell Bitcoin on its platform, and does not charge any Bitcoin transaction fee.