Major cryptocurrencies jump as the controversial dollar-pegged token tether falls

Major digital currencies edged higher on Monday as tether, a controversial token designed to be pegged to the U.S. dollar, fell more than 2 percent.

The rise in virtual currency prices follows a sharp downturn last week, where the market shed billions of dollars in market capitalization, in tandem with a two-day sell-off in global stock markets.

Tether, a token that its creators claim is 100 percent backed by fiat currency reserves, was seen trading 2.5 percent lower at $ 0.965 Monday morning. Earlier in the morning, the digital asset fell to around 93 cents.

The firm behind it, Tether Limited, has come under scrutiny over whether it actually holds enough reserves to match the amount of tether tokens in circulation — Tether claims it does.

“There is concern about tether and whether it is truly backed by dollars and rumors about USDT (tether) being delisted from various exchanges,” Charles Hayter, the chief executive of comparison site CryptoCompare, told CNBC in an email.

Hayter also pointed to a report by an industry publication that Bitfinex, a cryptocurrency exchange connected to tether, had suspended deposits in U.S. dollars, euros, sterling and Japanese yen.

Tether Limited and Bitfinex were not immediately available for comment when contacted by CNBC.

Tether is what is known in the industry as a “stablecoin,” a cryptocurrency pegged to a government-backed currency to avoid the volatility common in cryptocurrencies like bitcoin. The idea has also been put into practice by Goldman Sachs-backed firm Circle.

Any significant swing in the price of tether should come as a surprise to investors as the token is meant to have a static exchange rate of 1 tether token to $ 1.

The token is used to buy other cryptocurrencies like bitcoin. There have been fears that tether was used to manipulate the price of bitcoin and other cryptocurrencies.

“If the perception that tether can hold a stable value is called into question, traders who are holding USDT are most likely to shift their funds into other cryptos in order to hold their value,” Mati Greenspan, senior market analyst at eToro, told CNBC in an email.

Major cryptocurrency prices are still well off their record highs, with bitcoin off by more than 66 percent, ether down more than 84 percent and XRP down 88 percent.

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