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U.S. Regulators Reportedly Focus on Tether, Facebook's Diem

Concerns raised about Tether’s holdings of commercial paper to back digital currency.
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The U.S. government is showing concern about so-called stablecoins, such as Tether and Facebook's  (FB) - Get Facebook, Inc. Class A Report Diem, according to a published report Tuesday.

Stablecoins are digital currencies backed by tangible assets, such as fiat currencies.

Tether and Diem reportedly represented the principal subject of a meeting by U.S. regulators last week on stablecoin risk, Bloomberg reported, citing knowledgeable sources. The regulators include the White House Working Group on Financial Markets, led by Treasury Secretary Janet Yellen.

They’re especially worried about Tether’s statements that it owns huge amounts of commercial paper, which is companies’ short-term debt, the sources told Bloomberg. An investor exodus from Tether could cause potentially cause problems in that market.

Yellen urged agency chiefs to “act quickly” in making rules to ensure the safety of stablecoins, the sources said. Stablecoins now have a market capitalization of more than $100 billion, with Tether making up more than 50%, Bloomberg reported.

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TheStreet.com founder Jim Cramer said Monday that cryptocurrencies felt “short squeeze-ish” after a Bloomberg report Monday that the Justice Department could bring formal charges against Tether in a separate action in the coming weeks.

That probe is reportedly exploring whether Tether executives engaged in bank fraud by hiding that fact that some of its transactions were related to the cryptocurrency market.

Last week, Cramer cited his issues with Tether, telling Action Alerts PLUS senior analyst Jeff Marks that the cryptocurrency "could basically be the Achilles heel of the entire Bitcoin operation."

Cramer said, "We don't know what they own, and we're very concerned about it."

Cramer noted that several bigwigs, including Federal Reserve Chairman Jerome Powell, have also expressed concern about Tether.

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