This article https://crypto-anonymous-2021.medium.com/the-bit-short-inside-cryptos-doomsday-machine-f8dcf78a64d3
is stoking fears.
Tether is not under investigation for "pumping bitcoin" or "printing fake dollars" but for making untrue claims about reserves backing tether. They allegedly co-mingled client funds, losing $850 million of co-mingled client and corporate funds in 2018, thus tether was not fully backed by cash reserves at that time.
The New York Attorney General does not seem interested in taking tether down. Tether will most likely get a heavy fine just as banks get fined when they break the law.
But in the unlikely event they did take tether down, there is the regulated stablecoin USDC which serves as a substitute and has already grown considerably, thus makes for a good backstop. While bitcoin may drop sharply in price on the unlikely news of a tether takedown, bitcoin would likely rebound in a hurry as capital rushed from USDT into both USDC and bitcoin.
Update: NY AG’s $850M Probe of Bitfinex, Tether Ends in an $18.5M Settlement. An agreement was reached that Tether must provide all records going forward every quarter. Tether has been able to account for all tether created since 2018 and more recently has provided reports satisfying the requirements of the AG since they reached an agreement.
Update as of Sept 11, 2021: The US government could be cracking down on stablecoins as a digital currency of their own could make such stablecoins obsolete: https://www.bloomberg.com/news/articles/2021-09-11/stablecoins-face-crackdown-as-u-s-discusses-risk-council-review
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