Is USDTether back in the hot seat despite unwavering popularity among crypto traders?

Bitfinex, once one of the biggest crypto exchanges around, and it’s parent company iFinex, are forever in the news for some scandal or legal difficulty or the other. Most of the time it’s because of their problem child, Tether. As the foremost stable coin at the moment, far outpacing all the other newer arrivals on Binance exchange and others, Tether or USDT is quite a hive of controversy. This doesn’t seem to deter traders whatsoever. Tether still has a global market cap up at number eight in the global top ten presently, no small achievement for a stable coin pegged to a fiat currency with no chance of ever accumulating any further value. Why is Tether such a dark horse that crypto enthusiasts can’t resist riding?

Is Tether really backed 1:1 by USD? We still don’t know for sure. No official auditor has signed off their books, and all we have is the word of the Ifinex parent body. Added to that is the rumour that the price of Bitcoin is being artificially manipulated by Tether printing. Every time Tether gets printed, Bitcoin price makes a huge move, usually to the upside. This regular printing of millions more USDT every few months is looking highly suspect. Yet still Tether volume on Binance is more than all the other stable coins put together, against Bitcoin. The BTC/USDT pairing boasts a massive 457 625 577 in volume today. That almost half a billion dollars in trade. Am I even reading that figure on Binance correctly? It seems like a lot. Nothing comes even close in volume traded on a daily basis.

I was spooked by Tether FUD a few months back when they were in the news for potential fraud, and banks were closing their accounts, but nothing happened. I moved over to trading TUSD and PAX on Binance instead, but the liquidity is so low by comparison that trading was slower and less eventful. Volume traded is insignificant by comparison, and tether is still the clear leader. Besides that, Binance has some of their IEO tokens newly released that are only paired with Tether. So despite my initial FUD, I have migrated back to trading some Tether again. After all, the FUD hardly affected the Tether market at all, so I was spooked for nothing. That’s typical resilience in USDT, despite the shady reputation of Bitfinex, the older brother project, under iFinex. Nothing seems to be able to stop them.

The problem is that this printing of masses of Tether with such uncertain backing is starting to look exactly like some central bank printing its own fiat paper currency, and thus inflating the supply and devaluing the currency as a whole for everyone. Here USDT is pegged so we don’t see the usual deflation in value, with prices usually going up to accommodate more supply or liquidity, when the Fed or central treasury prints more fiat. Normally the market will act like a sponge in a pool and prices of goods would go up to accommodate or soak up the extra fiat supply. But Tether is not designed like that. So it looks even more shady than the central banks, and those banks set a high standard in shady. It’s hard to beat them at that game. Nevertheless Tether is giving them a run for their money, and it’s not a bank run. It’s a print run. Can you imagine all that Tether suddenly flooding the market only to be used to buy up extra Bitcoin by the million. Someone is making a fortune here by the sounds of it, selling their fabricated unbacked USDT and getting - in exchange - some “hard money” in the form of Bitcoin. What could go wrong?

Well in recent days Tether seems to have met its match in the New York Attorney General. A case of fraud against USDT and Bitfinex is being evaluated, saying they defrauded customers by pulling $850 million of their supposed UST dollar backing, and using it to get themselves out of trouble in another department of the corporation. New York has some of the toughest financial laws and Ifinex and USDT are under ongoing investigation for alleged fraud. It’s either that or massive fines for them. I would keep a wide berth for the moment, just in case Tether suddenly goes off line, or should I say off chain. That would send ripples through the market for retailer, institutional and long term investor alike.

Nobody likes to see fraud or cheating in the crypto markets. We took to crypto precisely to get away from the central banks and now we are faced with an internal token just like the currency we are trying to avoid. This is very dubious. The problem is though that we don’t want it to succeed but we can’t afford for it to fail either. The collapse of USDT might have ripple effects in the Bitcoin price itself, sending it tumbling down to retest earlier lows. And it would take all the alts down with it, just at the time when we are awaiting the altcoins season with bated breath. It’s just not as forthcoming this season for some reason. Maybe I’m impatient.

“The crypto industry needs to realize that in order for crypto to go mainstream there needs to be integrity in the market. That integrity will either be forced upon the industry by regulators and legal actions, or will require standardization and best practices to eliminate activities like commingling customer and exchange funds.”

Aaron Kaplan, former lawyer and now CEO of NY trading platform Prometheum.

Let’s remember that Tether is tied to the US dollar, which in itself is an inflationary currency which is gradually losing – if not apparent value – then certainly purchasing power. The value of the dollar appears strong by global standards, but the prices of goods keep going up, and this is the hidden inflationary spiral.

Whether or not Ifinex has shifted its funds from one account to the other to cover its bases is uncertain. Nevertheless the sentiment against Tether has grown and sentiment is one of the biggest movers in the price of Bitcoin generally, more so than technical analysis and fundamentals sometimes. So with this Tether uncertainty, we can only hope that if they do crash and burn, the rest of the stable coins will take up the slack among traders on the major exchanges. Besides that, I will probably stay out of holding any more USDT once more and trade my BTC back into TUSD when I sell the highs on a swing basis. Better safe than sorry and having come to the end of my Tether, I feel the need for some PAX of mind or something True to back my USD. DAI anyone? Let me know what your preferences are if you are a crypto trader.