Earlier this morning, the price of Bitcoin and other cryptocurrencies plunged after news began circulating that $31 million of Tether tokens had been seized via cyberhack.
The effect of this news can be seen in virtually all cryptocurrency markets:
It’s important to note the massive response to such an incident involving a little-known cryptocurrency; one whose correlation to other cryptocurrencies may hinge on nothing more than the uncertainty and, in some cases, the misperception surrounding an entire technological realm, rather than the particulars of a given cryptocurrency; in this case, Tether.
On the other hand, there’s also uncertainty regarding the Bitfinex exchange itself and what it’s potential impact may be on all cryptocurrencies should the exchange fall.
Fortunately, Tether’s developers were able to counter the cyberhack by quickly writing software to blacklist the address to which the coins were held. What this means is that the funds were frozen; safe from either transport or liquidation. It also amounted to a “hard fork” in Tether’s Omni Layer protocol.
The panicked response to the Tether hack occurred against a backdrop of suspicion that had been brewing for some time—suspicion regarding the relationship between Tether (a cryptocurrency supposedly pegged to the US Dollar) and the Bitfinex exchange.
In short, questions have been circulating whether Bitfenex had the $400 million in reserves to back its tokens, or whether Tethers, issued without dollar asset backing, were being used to buy Bitcoin to drive up Bitcoin prices—an “insider” move benefitting the “combination” who engineered the maneuver.
It goes without saying that if Bitfinex collapses—considering that it is currently the largest cryptocurrency exchange—then such an implosion might significantly impact the entire cryptomarkets.
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