Untethered? Discrepancy in USD-pegged stablecoin raises concerns
A major stablecoin in the cryptocurrency community has gone through a bumpy ride in the last few days, suggesting that the most recent bull pump could be artificial in part.
The stablecoin is described as a digital asset that is linked to the US Dollar at a 1:1 ratio. This is to say that every Tether token is theoretically backed by the US Dollar.
Pent up concerns around Tether’s reserves of fiat currency were reflected in the market on October 15, where the cryptocurrency dipped below $1 dollar in what appears to have been a notable sell-off of Tether tokens.
Another factor that may have influenced the drop in value of Tether was a report at the beginning of the month which stated that both Tether and Bitfinex, the exchange responsible for issuing the tokens, had parted ways with Puerto Rico’s Noble Bank.
The significant discrepancy in Bitcoin’s spike between Bitfinex and other exchanges like Coinbase was clearly influenced by Tether’s dip. On October 15th, BTC hit $7,789 on Bitfinex but only reached $6,808 on Coinbase (which does not use USDT). In fact, some observers of the crypto market suggested that the meteoric rise in BTC’s price was largely due to Tether’s slide to the downside.
This means that in theory, a trader could buy USDT off an exchange that sells it at its current price and trade it on Bitfinex for a small profit, which would also test the integrity of the professed 1:1 ratio.
At the time of writing, Tether is trading below $1 according to data from CoinMarketCap.
Transparency must prevail
This comes as Tether undergoes scrutiny about its unwillingness to clearly delineate its reserves of fiat currency to back new coins. Until the digital asset releases an official third-party audit to cement trust in the broader community, it’s likely that this cloud of uncertainty surrounding Tether tokens will remain.
Meanwhile, new competitive stablecoins will only increase pressure on the firm’s ability to prove that it’s running a transparent operation.