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Crypto crash could 'give rise to disputes and flush out frauds'

Published on 12 May 2022

• International law firm RPC warns instability of cryptocurrency also risks causing a run on USD Tether

Commenting on today's news story that the crypto market has gone into meltdown, senior associate Christopher Whitehouse, who specialises in cryptocurrency litigation, said:

"The fall in value of cryptocurrencies in recent days has been driven in part by the fall in the price of USD Tether, which plays a critical role in the cryptocurrency ecosystem. 

"The fall below its 1 USD peg may prompt holders to abandon the stablecoin and test the adequacy of its reserves. Much of the detail of those reserves is opaque and therefore if there was a run on USD Tether it is unclear whether it would have sufficient reserves or would be able to liquidate those reserves quickly enough to meet incoming redemption requests, potentially leading to its collapse. 

"If that scenario were to manifest, the prices of cryptocurrencies would decline sharply. 

"From a legal perspective, sharp declines in value often give rise to disputes, for example around automatic liquidations of cryptoasset holders' positions. 

"Such price declines have historically served to also flush out frauds when cryptoasset holders attempt to exit their positions and convert their holdings back into fiat currency."