The price of Tether (USDT), a crypto stablecoin backed by the US dollar pegged to $1, has fallen by around 4 percent in the past 24 hours to $0.96.
As USDT fell, it became more expensive for traders to purchase major cryptocurrencies like Bitcoin and Ethereum with USDT, pushing the premium of cryptocurrencies up on crypto-only exchanges like OKEx and Huobi.
At its peak, the price of Bitcoin achieved $7,500 on Bitfinex, as CCN reported on Monday.
Ostensibly, In the short-term, the sell-off and instability of USDT may seem beneficial for the crypto market due to the increase in the price of most cryptocurrencies but in reality, it really is not.
Bitcoin achieved $7,500 on Bitfinex but the inflated price of BTC by USDT is of less significance to the global cryptocurrency exchange market. It can be argued that the decline of USDT portrayed lack of maturity and strong infrastructure in the market, which could push away institutional investors such as pensions and academic funds that are interested to commit to the asset class.
In the long-term however, the decline of Tether could positively affect the crypto market as it will lead traders to regulated, audited, and transparent alternatives like Gemini Dollar (GUSD), Paxos (PAX), and TrueUSD (TUSD).
Already, the price of TUSD has increased to $1.08, by more than 8 percent, and has risen quite substantially against USDT on Binance, which suggests that traders have started to favor newly emerging stablecoins that have the backing of banks and authorities.
“Bitcoinland: where a simple filthy statist buck is ‘worth’ $1.08 on an exchange… because reasons. Ff you are wondering what this means: there are two ‘synthetic dollars’ being traded against one another here: TrueUSD and Tether the fact that they aren’t trading at $1.00 is because someone (Bitfinex, owner of Tether Ltd) is having bank account / liquidity problems,” Post Oak Labs founder Tim Swanson said.
Since 2014, Tether has provided cryptocurrency-only exchanges an alternative to the US dollar with which traders can hedge their positions to the stability of the US dollar. Prior to 2018, there were no alternatives to USDT, forcing the industry to depend on USDT as a widely accepted stablecoin.
But, as cryptocurrency analyst and trader Alex Kruger told CCN in an exclusive interview, Tether’s lack of transparency and opaque operations poses serious issues for traders. For instance, at this point, it remains unclear whether traders can redeem USDT at a 1:1 ratio to the US dollar, due to the collapse of Noble Bank, Tether’s partner bank.
“Both Gemini and Circle are US based regulated issuers and thus perceived as more trustworthy, carrying lower credit risk. One should expect a great percentage of all USDT (Tether) holdings to migrate to GUSD (Gemini) and USDC (Circle),” Krüger said.
Bitfinex has clarified that it has obtained the approval of its bank to enable fiat deposits and withdrawals in the next 24 hours. It is possible that the statement of Bitfinex could lead to the stabilization of USDT.
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Last modified: May 20, 2020 5:08 PM UTC