Tether Peg Cracks
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.”
I don’t think they know how this game works!