Bitcoin price surged 9 percent within hours as Tether started losing its grip on the USD-peg.
The BTC/USD pair closed yesterday on a modest 2 percent gain in pennant formation action following the recent drop. Nevertheless, the couple started picking momentum during the early Asian trading session and jumped to as high as 7800-fiat from its previous low near 6300-fiat.
At the same time, Tether's USDT/USD pair lost came crashing down below 0.95-fiat at the beginning of the Asian session. It eventually formed lower lows towards 0.85-fiat, before correcting higher towards 0.90-fiat. The pair, however, continues to be far from its $1-peg that is creating a negative sentiment about its future in the crypto space.
Bank Insolvency, FUD
Tether is closely tied to BitFinex, a global crypto exchange which lately has dropped Noble Bank as its banking partner. The amount of US dollars required to back the Tether's USDT token supply were reportedly deposited in the same bank, which caused the stablecoin temporary hassles. Later, reports started to surface that Tether had no money to back its total supply, with many of them calling the stablecoin project a scam. They also found a strong connection between the chiefs of BitFinex, Tether and Noble Bank, especially at the time when the Noble bank became a strong point of concern for the Puerto Rican regulators. Reportedly, the authorities issued a warning to the firm, the details of which couldn't make to the press.
The needle then points to one thing: whether Tether has funds to support its USDT supply or not? It can only be found out with a clear and transparent audit. But, even on that front, the project has not come reasonably well. Against the promises made in their original whitepaper, the Tether team has not conducted a proper financial audit. It had however hired a legal firm, which already had a business relationship with Tether and Noble Bank, to perform an inspection.
All stories collectively have created a negative community sentiment for USDT. Retail investors are already exchanging their Tether holdings for Bitcoin and other top coins, which have also seen an impressive rally in the past 24 hours.
"There is no guarantee that you can redeem your tethers. There should be a way for Tether to repurchase them from you for 1 dollar. There is not. For me, this whole thing smells very like when mtGox went belly up. You want to hold your bags, will that is your decision. It is not why I am in crypto." - one of the crypto users commented on Reddit.
Tether social media handles posted nothing during the crash.
Featured Image from Shutterstock. Charts from TradingView.