I mean, it’s right there in the name.
The largest so-called stablecoin by market cap, Tether (USDT), is supposedly pegged to the U.S. dollar and always worth $1. However, if there’s one thing we know for sure about the world of cryptocurrency, it’s that things don’t always go according to plan — a fact emphasized by Tether’s sudden plunge in value over the last 24 hours.
The stablecoin briefly traded below $.87 on the exchange Bittrex before climbing back up to the still-abysmal price of $.915 at the time of this writing.
USDT’s instability is a troubling sign not just for those HODLing that particular coin, but for potentially anyone sitting on cryptocurrency. That’s because, as demonstrated by researchers at the University of Texas this past June, Tether has likely been used to “provide price support and manipulate cryptocurrency prices.”
Critics have long argued that Tether is a scam — a claim bolstered by Tether’s seeming refusal or inability to release an audit — that artificially inflates the price of bitcoin. Even if this were not true, with almost $2.5 billion worth of USDT in circulation, a crumbling of the stablecoin — of which a temporary 13 percent price drop might be an early sign — would be more then enough to spook cryptocurrency investors and the market at large.
Which appears to be exactly what we’re seeing. On Monday, the exchange Bitfinex, which the New York Times reported last November is “owned and operated by the same people” as Tether, issued a statement declaring that it would “temporarily pause fiat deposits (USD, GBP, EUR, JPY) for certain customer accounts in the face of processing complications.”
Bloomberg suggests that concerns over those “processing complications,” and what they mean for Bitfinex’s relationships with banks, led to a crisis of confidence in Tether and a corresponding sell-off. That sell-off, in turn, both drove down USDT’s price and simultaneously drove up bitcoin’s as traders sought to dump their Tether for BTC.
None of this was helped by the fact that the exchange Binance temporarily suspended Tether withdraws (they have since resumed).
Meanwhile, traders are running to stablecoins other than Tether. TrueUSD, a stablecoin that is also supposedly pegged to the U.S. dollar, surged to as high as $1.07 on Bittrex in the last 24 hours. In other words, people were willing to pay a 7 percent premium to hold something that wasn’t Tether.
What all this means for the future of Tether specifically, and stablecoins more broadly, isn’t exactly exactly clear. However, what it means for today perhaps is. Namely, “stable” might be more of a suggestion than an accurate descriptor.