Skepticism around Bitcoin and cryptocurrencies in recent days wasn't helped by a so-called “fat finger” trading error, in which the company behind stablecoin issuer Tether mistakenly created more than $5 billion of its dollar-backed currency at once. This move increased the amount of stablecoin in circulation by over 100%, according to a report by the Wall Street Journal.
The drawn out “crypto winter,” which began after the price of Bitcoin came tumbling down from an all-time high near $20,000 at the end of 2017, persisted for the majority of 2018. Then this year, crypto bulls have been re-energized by a comeback of the blockchain-backed currency, as Bitcoin surpassed the key $13,000 level.
While Tether is designed to operate digitally like Bitcoin, it is pegged to the dollar. Therefore, Tether’s price doesn’t fluctuate as widely as Bitcoin has been known to. Currently, there’s around $3.9 billion of Tether circulating in the market. About 60% of investors trade Bitcoin, the most actively traded digital coin, with Tether.
Fat Finger Sheds Light on Crypto Concerns
On Saturday, the sudden flood of stablecoin into the market spooked investors. The trading error reportedly happened when the crypto firm was helping exchange Polonix conduct a chain swap, in which it was moving tethers from the Omni to the Tron blockchains, per CoinDesk. Tether CTO Paolo Ardoino explained the error as an “issue with the token decimals,” when preparing the issuance for the swap.
Although the company was able to destroy them promptly after the mistake, the damage was already done. While the error had nothing to do with Bitcoin, it has shed nearly 15% of its value since last Saturday. On Wednesday afternoon, it traded as low as $9,942.
At large, the instantaneous disaster for Bitcoin shows just how vulnerable the nascent industry is to unforeseen hurdles. The cryptocurrency world has been scrutinized for hosting rampant fraud, money laundering, and other illicit activities.
Tether’s hiccup wouldn’t be the first time that Tether Ltd., the company that issues the dollar-backed coin, made headlines. In April, the New York attorney general said the company used Tether’s dollar reserves to cover up $850 million in missing funds.
While Tether’s error might be associated with Bitcoin’s sudden drop, other factors may be weighing on its price. Regulatory scrutiny of Facebook.com Inc.’s (FB) plans to release its own digital coin may have spoiled the initial hype surrounding the announcement. While the social media titan’s foray into the crypto world was first seen as an event that would bring Bitcoin further into the mainstream, push back from Washington and regulators around the world may be doling out a harsher slice of reality.