USD Tether Implosion and what it means for BTC
Currently tether is sitting at around 0.97$, significantly below 1$. The trust has been broken and this is not a normal downwards fluctuation. We have also seen a big pump in BTC prices a few days ago. Here I will quickly summarize a few commonly overlooked facts and give my forecast.
Why does BTC pump when tether crashes?
There are three main reasons
Some exchanges list BTC prices in USD and some in USDTether. On coinmarketcap this is not differentiated. Obviously when Tether is below 1$ a BTC in Tether is more expensive than BTC in Dollar. The average over all exchanges then goes up. At a price for Tether of 0.97$ this could explain a BTC pump of up to 3.1%
This price pump is not real and just an artefact of the calculation on coinmarketcap!People panic and want to get rid of their tether. The simplest way to do this is buying BTC. This will pump up the price of BTC, but these people did not want to have BTC in the first place and likely will later move into another stablecoin.
This price pump should only be temporary.People get more sceptical towards stablecoins and change their investment plan. They switch to BTC and will also hold more BTC in the future.
This is the only reliable price gain for BTC. It likely is a small one.
For the reasons explained above I would expect BTC to loose most of the current gains over a month or so. Of course this is a slow trend that may be overridden by other events in the market happening in that time-span.
What happens to tether?
The current situation cannot last. A stablecoin with a peg that is broken for a longer timespan is doomed to fail. Currently the sceptics have sold and the believers hodl and bet on a return to 1$. The market at a value of 0.97$ expects tether to return to 1$ but there is some level of doubt.
The problem is that the current situation is a very slippery slope. Either tether will be able to slowly climb back to the 1$ mark and survive, or at any moment there could be another price drop, leading to more fear and more people selling. From there things can evolve very fast and tether could crash to the level of expected backing (potentially as low as 0.2$)
I would argue that holding tether at the current situation is a very risky bet where you can win little (3% at best), but could loose almost everything. But buying tether at 0.4$ or so would be a very different story.
For BTC a return to stability of tether at 1$ will have minimal direct consequences. I do not expect an immediate backflow of capital into tether. But a further crash would certainly give another short term boost to btc.
Better alternatives to tether exist?
There are many other stablecoins out there that do not require the level of trust that is necessary for tether. My favourite one is BitUSD living on the bitshares blockchain, that is completely trustless.
Why do people still prefer tether? The main argument should be ease of use since tether is available on most major exchanges while the bitUSD people do little to promote their coin.
The second reason could be the simplicity of the concept behind tether, a giant vault filled with USD. BitUSD on the other hand relies on a dynamic collateral and not that easy to understand math.
This post it not financial advice. Do what you please with your tether :)
I would argue that a market price of 97% means the market considers the probability of a crash to be around 3% - while a market price of 40% means the market considers the risk of a crash to be around 1.5 times more likely than the probability of a recovery.
The market is controlled by sheeple, still I've come to realize that I'm no better than the market at predicting such things - and that most "traders" offering their insights on Steem or other platforms also don't know better than the market. Hence I disagree with the statement above - if it's 0.97 or 0.4, it doesn't matter at all.
At the other hand, there are people out there with "inside" information, or people knowing more than you and me - like, for the case of a centralized coin like USDT, obviously there are people out there that know much better than you or me weather USDT will survive or not over the next couple of days. Of course some of those will, directly or indirectly, buy, sell or short USDT. Of course this will impact the market price a bit - but not "enough". By average, if you're buying or selling due to a strong belief on how the price will move, it will cause wealth to move from your pocket over to the pocket of the people who knows more than you do.
I do agree to stay away from trading in a normal situation. But what is happening now is not normal. I also recommended to stay away from bitconnect because I thought it was scam all along. Right now I would 100% sure sell all my tether if I had any tether! But I never got any tether because I was already sceptical long before.
I fully agree on the 3% crash probability and do not think I am smarter than the market. But if you take a bet and you are not rich, then this is exactly the bet you do not want to take. A high chance of a small gain for a risk of total loss. That is the opposite of a good strategy for a small saver that wants security.
This is also related to my statement on the 0.4$ tether. I do not think tether will go to 0$ because there certainly will be some dollar reserves that some people could liquidate. Then if the price has dropped a lot it could be the opposite side of an investment where you do not fear total loss anymore but there is a real chance to make some money.
I think the confusion was the way I presented my argument. I do not doubt the price of 0.97$. I am not trying to make money by claiming it should be 0.98 or 0.96. I am just saying that due to market constraints of tether being bounded below 1$, holding tether which originally was a 'stable'coin has become a very risky speculative investment with a real chance to loose almost 100%. And if people are not aware and do not want that type of investment I hope they find my article and sell now eliminating that risk at a small loss.
That's right, and a pretty good point. It's quite the opposite of an insurance.
I was working for a bookmaker, and that's exactly the kind of bets people were doing most of ... putting a high stake bet on a favorite, at very low odds. Every now and then the favorite would lose, and we would rake in the money.
Never held any :-)
There has been such massive amounts of FUD against USDT all since it's inception that it seems like a miracle that it has survived until now.
This post is promoted by @reversed-bidbot with 0.197 steem!
Sorry, all funds have already been claimed.
Excluded from participation are: bidbots, autovoters.
Follow me to also earn steem on my other promoted posts. For more details please visit my discord server or read my introduction post
Congratulations! This post has been upvoted from the communal account, @minnowsupport, by frdem3dot0 from the Minnow Support Project. It's a witness project run by aggroed, ausbitbank, teamsteem, someguy123, neoxian, followbtcnews, and netuoso. The goal is to help Steemit grow by supporting Minnows. Please find us at the Peace, Abundance, and Liberty Network (PALnet) Discord Channel. It's a completely public and open space to all members of the Steemit community who voluntarily choose to be there.
If you would like to delegate to the Minnow Support Project you can do so by clicking on the following links: 50SP, 100SP, 250SP, 500SP, 1000SP, 5000SP.
Be sure to leave at least 50SP undelegated on your account.
Hi @frdem3dot0!
Your post was upvoted by @steem-ua, new Steem dApp, using UserAuthority for algorithmic post curation!
Your UA account score is currently 3.288 which ranks you at #7696 across all Steem accounts.
Your rank has improved 1209 places in the last three days (old rank 8905).
In our last Algorithmic Curation Round, consisting of 319 contributions, your post is ranked at #206.
Evaluation of your UA score:
Feel free to join our @steem-ua Discord server