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Are the wheels coming off Bitcoin? The crypto currency is now trading at under $8400, which is well beneath where it was in December. Some form of regulatory action seems to be just around the corner and there is nothing but bad news swirling around Bitcoin at the moment, not least an investigation into Tether coins.

Tether coins: Bitcoin’s Achilles heel?

The biggest problem at the moment is the investigation by the US Commodities and Futures Trading Commission (CFTC) into Tether coins and the Bitfinex exchange. Their claims of full dollar convertibility are under particular scrutiny at the moment.

Let’s think about this for a second. There are approximately 2 billion Tether coins claimed to be in existence, but if its claims are to be real, then there has to be a USD 2 billion account somewhere that will allow Tether to be freely converted into dollars.

“The idea that Tether is creating coins to buy Bitcoin is straight out of satire,” says Neil Wilson, Senior Market Analyst at ETX Capital. “If Bitcoin is a Ponzi scheme, then this is Ponzi squared; printing fake money to buy a different type of fake money in order to ramp up the price of the latter. If it weren’t likely to cause real world losses for many investors it would be hilarious.”

Many regulators will be watching the CFTC to see how it reacts to the evolving tether coins scandal. If it decides Bitcoin prices are being manipulated, there will be serious implications for the entire global crypto currency market.

Bitcoin prices have breached the $9200 level and are heading south. Wilson thinks there is a resistance level at $8000. Bitcoin is already below its 100 day moving average, and there may be a second key support at $6200, the 200 day moving average.

The Armchair Trader says:

Our view is that there have long been some fundamental structural problems within the Bitcoin market. Many of those involved in building the infrastructure that supports the trading of Bitcoin and its cousins – with the possible exception of Ripple – have little background in financial markets, but come from a technology pedigree. Bitcoin is about to be tested in the fires of intense regulatory scrutiny, coupled with serious questions surrounding some of the other crypto currencies. Investors are already starting to lose confidence and are heading for the door. If there is one thing a currency depends on it is trust – if the trust in Bitcoin evaporates, then we will see the price plunge well below $6000.

Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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