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Cryptocurrencies fell amid reignited regulatory worries and questions around the legitimacy of so-called "stablecoin" tether.
The entire market shed about $10 billion in value in the space of an hour late Thursday, CoinMarketCap data showed. This after the New York attorney general accused the operator of bitcoin exchange Bitfinex and tether issuer Tether Limited of hiding an $850 million loss.
The state's top lawyer alleges Bitfinex used at least $700 million from Tether's cash reserves to cover up the apparent loss of $850 million of client and corporate funds. Its findings were detailed in papers filed with the Manhattan Supreme Court.
Tether is a cryptocurrency that is meant to be pegged to the U.S. dollar — otherwise known as a stablecoin. Worries have been raised over whether Tether Limited holds enough dollars to back all the tokens in circulation.
The price of bitcoin, the world's largest cryptocurrency, has fallen 4% over the last 24 hours, according to industry website CoinDesk. In the same time period, the prices of ethereum and XRP — the world's second and third-largest virtual currencies by market value — also dropped 6% and 3%, respectively. Tether's price fell over 1%, coming off its dollar peg.
The attorney general's office said Thursday that Bitfinex handed $850 million to a Panama entity called Crypto Capital without disclosing it to investors. Executives at Bitfinex and Tether then allegedly "engaged in a series of conflicted corporate transactions" — where Bitfinex gave itself access to Tether's cash reserves.
"Those transactions — which also have not been disclosed to investors — treat Tether's cash reserves as Bitfinex's corporate slush fund, and are being used to hide Bitfinex's massive, undisclosed losses and inability to handle customer withdrawals," the attorney general's office said.
A court order issued by New York's legal chief requires the operators of Bitfinex and Tether Limited to cease further losses of its U.S. dollar reserves. They are also barred from deleting or permitting others to delete potentially relevant documents and communications.
Bitfinex said in response that the attorney general's court filings were "written in bad faith" and "riddled with false assertions." It flatly denied the alleged $850 million loss, stating the funds were "not lost but have been, in fact, seized and safeguarded."
"Bitfinex and Tether have been fully cooperative with the New York attorney general's office, as both companies are with all regulators," the crypto exchange said in a statement on its website. "The New York attorney general's office should focus its efforts on trying to aid and support our recovery efforts."
The company added that both Bitfinex and Tether are "financially strong," and that it would challenge the order by New York.
Tether is one of the most notable stablecoins on the market. It's meant to be backed 1:1 by U.S. dollars to provide a stable value, and is often used as an alternative to government-backed money for crypto trading.
But it's not been without controversy. Questions have arisen over whether it actually has enough dollar reserves to justify that dollar peg and whether it was used to manipulate bitcoin's huge price spike in 2017.
Charles Hayter, CEO of digital currency comparison firm CryptoCompare, said the New York fraud probe into tether was affecting the market. He said it creates a knock-on effect as tether is "so ubiquitous and so enigmatic."
Cryptocurrencies have slumped massively from a monster rally in late 2017. Bitcoin, once worth almost $20,000, has fallen steeply to just under $5,300 as of Friday. It had a recent pop last month that experts attributed to algorithm-driven trading.