MarketsTether’s possible collapse and what it means?

There's currently US$2.5 billion worth of Tether in circulation
Chong SiongOctober 17, 20187 min

The entire crypto community has been rocked, yet again as Binance, on Monday decided to suspend withdrawals of Tether (USDT). While the issue has eventually been resolved, it only spurred more rumours of Tether’s insolvency. This story caught fire because of rumours that Tether was backed by an insolvent bank. One can only imagine the panic this has caused the industry; as many traders store their value in USDTs. Is someone trying to derail the success of USDTs – the only “stablecoin” that has a major footing in the crypto industry, until now?

One simply can’t put to rest the possibility that Binance has its own dreams for its own stablecoin as well, since Bitfinex actually “backs” Tether. We have written before about Binance’s ambitions – and perhaps this could explain the recent interest, in what many say are unfounded rumours of Bitfinex going bust, and Tether along with it. Anyways, this is story for another time, as we watch the drama unfold.


Newer, more regulated stablecoins

A newer stablecoin, Paxos hit the markets recently – touted as a more secure, more regulated stablecoin. This token was mostly touted by Binance, possibly as a replacement for Tether. The question remains – does the market need a more regulated stablecoin?

There’s no doubt that Tether is no stranger to controversies, and as many pundits have commented; lack in accountabilities. Numerous news outlets point the finger at Tether for single-handedly manipulating the markets, and pushing Bitcoin prices to all-time highs (back in December 2017). Whether or not this is true, remains to be proved. However, to be fair – it is completely overdue to introduce competition into the market. In a market increasingly seeing the participation of legitimate institutions, it is only a matter of time that there will be a huge demand for regulated stablecoins – such as Paxos.


Why more regulations?

Tether is a cryptocurrency token claimed by its creators to be backed by one dollar for each token issued. Photo by:

While the market is still namely dominated by retail investors, the low cryptocurrency prices have attracted plenty of institutions who are bargain hunting – and they have plenty of dry powder left, having avoided investing in the all-time highs of 2017.

Let’s admit it, while the crypto industry in general are suspicious of the big boys, they secretly welcome them because only big money can push the prices up. Although institutions are entering crypto in a big way (which includes Fidelity this week) – they still have to practice caution and stick to basic accounting principles. For one, they are still required to peg the value of their holdings in US Dollars. To do this, they cannot “hold” onto any volatile instruments; which makes stablecoins infinitely useful.


The future

Just like emails were invented in the earlier days of the internet, it only found profound use just this decade. Today, everyone has an email – it is a necessity and one without an email would be met with scorn.

Such is the comparison for cryptocurrency – eventually, people will get used to the thought of crypto encompassing their daily lives and they may get comfortable and start counting their wealth in BTC instead of US Dollars. When this happens, then perhaps the use of stablecoins will cease. In the meantime, the arguments against “more” regulated stablecoins remain, as fiat-backed tokens means that it must be backed by a trusted institution, which present a major risk. As it is, since 2008, the US have seen over 500 bank failures.

What do you think? Should we go back to the basics and value cryptocurrencies based on their network, or can we back it with real assets other than fiat currencies, such as precious metals?

Cover photo by: Nick Chong/Bitcoinist

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