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People are freaking out about Tether

The whole point of Tether, the “stablecoin” suspected of having been used to manipulate the prices of bitcoin and other cryptocurrencies, is that it is a digital version of the dollar. The idea is that Tether is easier to move around than real dollars, and it can be used instead of the greenback on crypto exchanges that don’t have access to real, central-bank-issued money, to get in and out of trading positions quickly.

And Tether is used a lot. In fact, it is the second-most heavily traded cryptocurrency in the market, according to Coinmarketcap, after bitcoin.

That’s why people are starting to get jittery about the fact that since the start of October, Tether has been breaking the buck. It’s not the first time Tether has failed to hold onto its dollar peg. But this time, its discount to the dollar looks a little more sustained, and has been widening.

Take a look at this price chart, showing the average price of Tether across various exchanges since the start of the year (screenshot from Coinmarketcap):

It started falling more precipitously over the weekend, and on Monday slid to an average price of just above $0.94, according to Coinmarketcap, dipping to as low as $0.90 on the Kraken exchange, according to Bloomberg.

Over on Twitter, people have been freaking out. There’s been lots of talk of Tether “dying”, and bank runs:

Bizarrely, also, there was a tweet on Saturday night from Zhao Chenpeng, CEO of Binance, the biggest exchange globally and one that doesn’t allow access to fiat so does a huge amount of volume in — and makes a huge amount of money from — Tether, with a screenshot of its price along with the comment: “Regulated stable coin, lol”.

Many questions have been raised over whether Tether has the dollars in its bank account that it says it has, and which give the tokens their value. But until now, the market has largely bought into the company’s assurances that it — and its sister company Bitfinex — is solvent.

But it seems like the market is starting to question that, as liquidity worries grow amid reports of yet more banking problems for Bitfinex.

As Tether tumbled, the average prices of bitcoin and other cryptocurrencies rose across the board as calculated by aggregators like Coinmarketcap and Cryptocompare, largely as a result of the fact that on crypto-to-crypto exchanges, prices are derived from Tether (so as that fell, other cryptos went up). But also because on those crypto-only exchanges, the only option anyone holding Tether had to sell in exchange for was those well-known safety assets: other cryptocurrencies.

Some crypto evangelists seemed to be suggesting that this was a good thing for the industry (Phillip Nunn is a self-professed “blockchain evangelist”; Arianna Simpson was “into crypto before it was cool”):

You gotta love the crypto. 

Related links:
Has bitcoin come to the end of its Tether? – FT Alphaville Tether’s “transparency update” is out – FT Alphaville
Crypto tethers as the new eurodollars – FT Alphaville

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