If you have been living under a rock these past few days, there has been a revelation that could potentially rock the crypto markets.

It has to do with Tether.

If you are not familiar, Tether is a cryptocurrency that was created with the intention of replacing the dollar on exchanges that don't have fiat capabilities.

Basically, it was set up like this:

Create one Tether for every dollar held in reserve.

The goal being that Tether will always be worth roughly $1 USD.

The benefits for having an instrument like this are many.

For one, it allows traders a "safe haven" in times of extreme volatility.

It also lets traders take advantage of this safe haven without actually having to leave the exchange, which is a huge benefit in terms of convenience and fees saved.

But what happens if a Tether is say, not really worth a dollar?

That is the question facing many currently as there is a mountain of evidence piling up that perhaps Tether may not be all they are cracked up to be.

Recent timeline of crap for Tether:

First you had the 2 banks that were responsible for supplying the dollars to the reserve fund cut ties with Tether a couple months back.

Yet new tethers continued to be produced.

Then you had the auditor that was brought on to perform an audit resign after only working with the company for a few short weeks.

Then the CFTC announced an investigation a few weeks back.

When you add it all together, it is looking like a lot of smoke, and as you know, where there is smoke there is often fire.

What does this mean going forward?

Well if the CFTC decides to shut Bitfinex (the exchange) down for their involvement in this potential scheme, it could be very bad for crypto markets, so bad that some are calling for a 30% drawdown from current levels, minimum.

Another possibility could be that exposing tether could result in the Bitfinex exchange being insolvent do to unknown liabilities related to tether.

Obviously these two would be the worst case scenarios.

Another possibility would be that the nefarious activity is exposed and people holding tether decide to run for the exits all at the same time.

This scenario is somewhat interesting because the only way to get out of tether would be to buy other cryptocurrencies such as bitcoin.

In this scenario we could see a pop in the crypto markets across the board as roughly $2 billion worth of buying would come in all at once.

Though that initial surge would likely be short lived as most of that money would probably flee to fiat off ramps.

Another scenario could be that it is found that tether only has some of the money to back their coins.

To me this seems like the most likely outcome, what the CFTC decides to do from there is anyone's guess.

One thing I do know is that this could have a huge impact on crypto markets or it could have no effect at all, depending on exactly what is uncovered.

I think this has been part of the weakness as of late.