What if—and hear us out on this one—not everything in the world of cryptocurrency is as it seems? What if it’s a place where a joke can become deadly serious, where coins and tokens and the rest can live in a Heisenbergian-Schrödegerrian state of uncertainty and paradox, both currency and security and neither all at the same time? Where words take on different and seemingly opposite meanings? Where instead of constancy and transparency a stablecoin actually brings instability and opacity?

These are the questions Janet Yellen, Jay Powell & co. are trying to answer. Merrick Garland has a simpler query to handle: What if the most important stablecoin out there, the most widely-used, the one underpinning more than half of all bitcoin trades is, at its heart, not just a really handy way to manipulate crypto markets but a gigantic bank fraud?

The Justice Department investigation is focused on conduct that occurred years ago, when Tether was in its more nascent stages. Specifically, federal prosecutors are scrutinizing whether Tether concealed from banks that transactions were linked to crypto…. Federal prosecutors have been circling Tether since at least 2018. In recent months, they sent letters to individuals alerting them that they’re targets of the investigation, one of the people said.

Quick! Better get out of the largest stablecoin and move things into, oh, we don’t know, maybe the third-largest?

Several hedge funds have backed away from trading and other activities on Binance in response to the accelerating regulatory crackdown on the crypto exchange, deepening the strain for a group already cut off by a clutch of banks and payments companies…. Several big UK high street banks, such as Barclays, NatWest and Santander, have recently barred retail customers from sending money to the exchange. At least two of Binance’s payments partners — regulated groups that provide a gateway between the conventional and crypto financial systems — have also cut ties.

Yeesh, it’s almost as though this is a particularly unsavory corner of the financial universe and those operating it are starting to get the message.

In recent days Texas, New Jersey and Alabama have alleged the [BlockFi] accounts amounted to an unregistered offering of securities. New Jersey ordered the company to stop offering the product from July 29, and the other US states threatened to take similar steps unless BlockFi could dissuade them.

The first move came from the exchange, FTX, which said it would reduce the size of the bets investors can make by lowering the amount of leverage it offers to 20 times from 101 times…. About 14 hours later, Changpeng Zhao, the founder of Binance, the world’s largest cryptocurrency exchange, echoed the move by FTX, announcing that his company had already started to limit leverage to 20 times for new users and it would soon expand this limit to other existing clients.

Well, not everyone.

"We've been doing a lot of work behind the scenes to provide our crypto customers with the functionality that they've been asking for," [Robinhood co-founder Vlad Tenev] said. "We know you want wallets…." Tenev's statements came during Robinhood's public roadshow Saturday, where the company's top executives fielded questions from the public about its upcoming IPO, planned for Thursday.

Tether Executives Said to Face Criminal Probe Into Bank Fraud [Bloomberg]
Hedge funds back away from Binance after regulatory assault [FT]
Regulators in three US states close in on BlockFi’s cryptocurrency accounts [FT]
Leaders in Cryptocurrency Industry Move to Curb the Highest-Risk Trades [NYT]
Robinhood CEO says the company is all-in on crypto and that users can expect new crypto features at 'some point' [BI]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Related

By Mike Cauldwell (https://www.casascius.com/photos.aspx) [Public domain], via Wikimedia Commons

Fake Currency Purveyors Hoarding Lots Of Very Real Cash

Tether sees Coinbase’s $4 billion and raises it $63 billion.

By Jdarsie11 [CC BY-SA 4.0 ], from Wikimedia Commons

The Mooch Has Big, Fake Things To Announce As His Less-Big-Than-Usual Party

The highlight of this year’s SALT conference make by Skybridge’s latest attempt to lose money in crypto.

By US government [Public domain], via Wikimedia Commons

Gary Gensler Stands Astride History Yelling Stop

Actually, he’s not saying anything. Just suing.

silver bars

Degenerates Distracted By Shiny Objects

So this whole Reddit bubble thing is still happening, just elsewhere.

By Mike Cauldwell (https://www.casascius.com/photos.aspx) [Public domain], via Wikimedia Commons

Largest Crypto Exchange Banned From Britain, Hottest Digital Token Tanks, Bitcoin Soars, Rinse, Repeat

For something so volatile and theoretically interesting, the not-particularly-trying trials of faux currencies are actually quite boring.