The cryptocurrency markets buckled on Thursday evening after New York’s attorney general accused the owners of a prominent exchange, Bitfinex, of using illicit transactions to mask $850 million in missing funds.
According to a 23-page legal filing, Bitfinex raided the reserves of a so-called stablecoin called Tether—a digital currency purportedly backed one-to-one by U.S. dollars—in order to pay out customers demanding withdrawals from the exchange.
The news caused Bitcoin to fall nearly 6% to around $5,100, and raise questions about the viability of Tether, which many investors use as a surrogate for dollars to move in and out of different cryptocurrencies.
The attorney general’s filing says the funds raided from Tether amount to $850 million. According to Chad Cascarilla, who is head of a company called Paxos that makes a rival stablecoin, that figure would account for at least 27% in Tether’s dollar reserves.