Tether has recovered from a mid-October sell-off to trade near parity with the U.S. dollar once more.
The crypto market’s dominant stablecoin had fallen to 86 cents, with speculation surrounding tether’s dollar reserves. Despite fears that the stablecoin may see further selling, the price has since recovered to $0.9921. according to data from Coinmarketcap.
The recovery in tether had been helped by further transparency regarding the dollar reserves, however a recent announcement has stated that the 500 million tokens have also been removed from circulation. The timing of this move suggests that tether are burning tokens in excess of their stated reserves. This could be part of a plan to produce a more transparent audit.
The redemptions and growing competition in the stablecoin market are still signs of discomfort for tether.
CCN has reported that tether pulled $610 million of the stablecoin’s market cap out of circulation since the beginning of October.
The tether coin saw heavy selling on Monday as the U.S. dollar peg cracked, with the coin trading at only $0.92. The move spurred a spike higher in Bitcoin and there was also a move above the $1 mark in Gemini’s new stablecoin, Gemini Dollar (GUSD).
The recent moves are indicative of trading activity around the news, where traders are becoming nervous at the “stability” of the stablecoin. Bitfinex was rumoured to be insolvent, which the exchange firmly denied, whilst tether had faced accusations that its dollar reserves were not enough to back the peg at 1:1 with the current market cap of over $2 billion. The two organisations share the same management team, so with new stablecoins appearing, there is competition and a potential safe haven for worried tether holders. As CCN highlighted, “Tether has not issued any new tokens in October, and the last time that new tokens entered circulation was on Sept. 21, when the treasury sent 50 million USDT to Bitfinex.”
Billionaire crypto investor Mike Novogratz also criticized tether’s role in the problems due to their poor attempts at transparency. Novogratz said the company should stop printing new reserves of USDT and focus on reassuring investors. He saw the lack of transparency as continually hurting tether’s brand. Novogratz was still positive on the role of stablecoins in the crypto market.
Tether has tried to calm the market by providing an update on the reserves situation. This seems to have worked so far but it’s a reminder that the risk of a tether sell-off is still possible. Traders don’t often show patience when there are rumours and a lack of clarity. The fact that the company has halted all new tokens and altered the circulation is maybe a sign that there is some work to be done to convince the market further.
The cryptocurrency market rallied on Monday after a crack in the tether stablecoin led to a surge in the price of Bitcoin. A fall of 3% in tether saw Bitcoin rallying from $6,300 to blow through previous resistance at $7,250 before settling lower on the day. The move led to gains across the entire spectrum of digital currencies with only tether showing a loss amongst the top twenty coins. The sell-off in the USDT peg is the latest twist after a bout of rumours regarding the Bitfinex exchange and problems surrounding tether wire transfers.
Tether (USDT) is a token that its creators claim is backed 1:1 by U.S. Dollars, yet this has been questioned by traders in the past. Despite spending the early years of crypto trading as the dominant stablecoin tether is now seeing some significant competition appearing on the horizon to take the throne. Binance have recently announced their backing for the $32 million Terra project, whilst the U.S. tech giant IBM have also backed a stablecoin project which will run on the Stellar network. The Gemini project, which was founded by the Winklevoss twins has also joined the recent stablecoin party with the arrival of the Gemini Dollar (GUSD).
The real competition for tether may be seen with the arrival of Circle and its USDCoin (USDC), which started trading only a few weeks ago, which the company’s CEO stated was, “basically a dollar that operates on the blockchain.” The goal is to allow a stable bridge between buying and selling cryptocurrencies from standard bank accounts. The key difference with Circle’s offering is that the customers are required to hold $1 for every USD coin in order to provide price stability.
Why is Circle a company to watch? The company was seeded by investment banking titan Goldman Sachs. Never one to miss a bull market or dodge a bear market, Goldman joined a group of illustrious investors, including Accel, Baidu and the Chinese bank CICC in a $250 million financing round. Circle has made aggressive moves in the past months to acquire the Poloniex exchange, quickly adding new coins and alongside the USDC project the company has been putting the finishing touches on some retail products.
Not content with its plans to dominate the crypto space, representatives of Circle also found time to attend a cryptocurrency roundtable hosted by Congressman Warren Davidson at the end of September as lawmakers seek to get control over the nascent financial revolution. Is it possible that Goldman Sachs sees imminent crypto regulation and a flood of retail and institutional money appearing in the space? And is it a coincidence that the tether peg is starting to crack only weeks after the arrival of Circle’s own USD stablecoin?
Show us your dollars
Coincidence or not, tether is now backed into a corner and may be forced to show their hand on the claims that they hold enough assets to back the $2.25 billion market cap that sees the coin hold seventh spot in the cryptocurrency list. A refusal to do so may see an exodus to new stablecoins and a potential rout in the stablecoin. Tether have since released a statement to reassure investors that the dollar reserve, “…remains in surplus of the 1:1 backing of USDT and has more than the necessary currency on deposit to redeem all existing tethers.”
Cryptocurrency markets are higher this morning after the Tether stablecoin slipped to 95 cents on the dollar on the Kraken exchange. The move lower in Tether across the board led to a strong volume spike in Bitcoin, which moved from $6,300 to blast through previous resistance at $7,250.
Monday’s sharp move lower in the stablecoin is significant because criticisms have been levelled in the past at the claims that is each Tether is backed 1:1 by the U.S. dollar. The move is also significant because new stablecoins have recently come onto the market, including the “USDCoin” created by Circle. Fears over the Bitfinex exchange being insolvent have also been swirling and Tether sees large volume on the Bitfinex exchange.
This could be the first crack in Tether that sees traders move to other exchanges and stablecoins.